Exhibit 99.2
1
LESAKA TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Overview
The following unaudited pro forma combined financial statements have been prepared to give effect to the Acquisition. The Company has
prepared these unaudited pro forma combined financial statements based on (a) its historical unaudited condensed consolidated financial
statements as of and for the six months ended December 31, 2021, (b) its historical audited consolidated financial statements for the year
ended June 30, 2021, and (c) the combined financial information for Connect as of February 28, 2022, and for the six months ended February
28, 2022, and the twelve months ended August 31, 2021, which has been derived as described below. The unaudited pro forma combined
financial statements are based on the historical financial information statements of the Company and historical financial information of
Connect after giving effect to the Acquisition and certain assumptions, reclassifications and adjustments which we believe to be reasonable
and factually supportable as described in the notes to the unaudited pro forma combined financial statements.
The Company has presented an unaudited pro forma combined balance sheet which combines the historical balance sheets of the Company
as of December 31, 2021, and Connect as of February 28, 2022 as if the Acquisition had occurred on December 31, 2021. The Company has
presented an unaudited combined pro forma statement of operations for (a) the six months ended December 31, 2021, of the Company and
Connect which combines the histori cal statements of operations of the Company for the six months ended December 31, 2021, and the
combined financial information for Connect for the six months ended February 28, 2022, as if the Acquisition had occurred on July 1, 2020,
and (b) the twelve months ended June 30, 2021, of the Company and Connect which combines the historical statements of operations of the
Company for the year ended June 30, 2021, and the combined financial information for Connect for the twelve months ended August 31,
2021, as if the Acquisition had occurred on July 1, 2020.
The Company’s fiscal year ends on June 30 and Connect’s fiscal year ends on the last day of February . SEC rules require the Company to
prepare the pro forma statement of operations by using its most recently completed fiscal quarter prior to concluding the transaction (which
was December 31, 2021, upon closing the Acquisition on April 14, 2022) and bring Connect’s statement of operations up to within 93 days
of the Company’s most recent fiscal quarter end. Thus, the Company used Connect’s balance sheet on February 28, 2022 for purposes of
combining with the Company for the pro forma balance sheet as of December 31, 2021 and has prepared the pro forma combined statement
of operations to coincide with its fiscal reporting periods as follows:
●
The Company used Connect ’s statement of operations for the twelve months ended February 28, 2022, and deducted the six months
ended August 31, 2021, to produce the statement of operations for the six months ended February 28, 2022; and
●
The Company used Connect ’s statement of operations for the twelve months ended February 28, 2021, added the six months ended
August 31, 2021, and deducted the six months ended August 31, 2020, to produce the statement of operations for the twelve months
ended August 31, 2021.
A tax rate of 28%, the South African statutory rate, has been applied when calculating taxation impacts unless otherwise specified. Certain
Connect balances have been reclassified to conform to the balance sheet and statement of operations presentation of the Company.
The historical consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in
the United States of America (“U.S. GAAP”) and are shown in U.S. dollars. The combined financial information of Connect, which has been
derived as described above, was prepared in accordance with International Financial Reporting Standard for Small and Medium-sized Entities
(“IFRS for SMEs”) issued by the International Accounting Standards Board (“IASB”), which differs in certain respects from U.S. GAAP.
Necessary adjustments have been made to reconcile the combined financial information of Connect to U.S. GAAP. The combined financial
information of Connect is denominated in South African Rand (“ZAR”). Therefore for purposes of presenting the unaudited pro forma
combined financial statements an exchange rate of $1 / ZAR 15.930554 has been used to translate Connect’s historical balance sheet as of
February 28, 2022, from ZAR to U.S. dollars, based on the closing exchange rate as of December 31, 2021, as reported by an independent
external source (www.oanda.com) (“Oanda”). An exchange rate of $1/ ZAR 14.974825 has been used to translate Connect’s results of
operations for the six months ended February 28, 2022, from ZAR to U.S. dollars, based on the average daily exchange rate for the six months
ended December 31, 2021, as reported by Oanda. An exchange rate of $1/ ZAR 15.716182 has been used to translate Connect’s results of
operations for the twelve months ended August 31, 2021, from ZAR to U.S. dollars, based on the average daily exchange rate for the twelve
months ended June 30, 2021, as reported by Oanda. The Company has used the exchange rates for its reporting periods to translate Connect’s
ZAR-reported balances because, upon consolidation (or combination), Connect is consolidated first into Net1 SA’s reported numbers (which
are also prepared in ZAR) and then the consolidated Net1 SA group is converted to USD and consolidated into Lesaka.
2
The Acquisition has been recorded using the purchase method of accounting. Under the purchase method of accounting, the aggregate
consideration paid is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed on the basis of their fair
values on the transaction date. Any purchase price in excess of net assets acquired is recorded as goodwill. These unaudited pro forma
combined financial statements have been prepared based on preliminary estimates of fair values based on information that is currently
available. The actual amounts and the allocation between net tangible and intangible assets ultimately recorded may differ materially from
the information presented in these unaudited pro forma combined financial statements, including property, plant and equipment, identifiable
intangible assets and residual goodwill. The preliminary estimates of the fair values of the assets acquired and liabilities assumed reflected
herein are subject to change based upon completion of the valuation of the assets acquired and liabilities assumed as of the closing date.
The South African competition authorities approved the transaction subject to certain public interest conditions relating to employment,
increasing the spread of ownership by historically disadvantaged people (“HDPs”), and investing in supplier and enterprise development.
Further to increasing the spread of ownership by HDPs, Lesaka is required to establish an employee share ownership scheme (“ESOP”)
within 24 months of the implementation of the Acquisition, that complies with certain design principles for the benefit of the workers of the
merged entity to receive a shareholding in Lesaka equal in value to at least 3% of the issued shares in Lesaka at the date of the Acquisition.
If within 24 months of the implementation date of the transaction, Lesaka generates a positive net profit for three consecutive quarters, the
ESOP shall increase to 5% of the issued shares in Lesaka at the date of the Connect acquisition. The final structure of the ESOP is contingent
on Lesaka shareholder approval and relevant regulatory and governance approvals. The ESOP had not been established as of the date of the
preparation of this pro forma information and therefore no account of these equity transactions is included in these unaudited pro forma
combined financial statements.
No account has been taken within these unaudited pro forma combined financial statements of any future changes in accounting policies or
any synergies (including cost savings), all of which may or may not occur as a result of the Acquisition. In addition, the impact of ongoing
integration activities and other changes in Connect’s assets and liabilities could cause material differences in the information presented.
These unaudited pro forma combined financial statements are for illustrative purposes only and are not necessarily indicative of the combined
results of operations or financial position of the combined company that would have been reported had the Acquisition been completed as of
the dates presented, and are not necessarily representative of future consolidated results of operations or financial condition of the combined
company.
You should read these unaudited pro forma combined financial statements in conjunction with the historical audited combined financial
statements and accompanying notes (including the reconciliation from IFRS for SMEs to US GAAP) of Connect included in Item 9.01(a) of
this Form 8-K/A and the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K and
unaudited condensed consolidated financial statements include in the Company’s Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2022.
3
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of December 31, 2021
(in USD thousands, unless otherwise indicated)
Lesaka
Connect
Note 2
Transaction
accounting
adjustments
Notes
Proforma
ASSETS
Current assets
85,092
4(h)
(51,974)
4(h)
(14,196)
4(f)
70,240
4(e)
(1,191)
4(e)
Cash and cash equivalents
182,356
14,106
(236,697)
4(a)
47,736
Restricted cash
57,788
-
57,788
Accounts receivable, net and other receivables
20,701
8,997
29,698
Finance loans receivable, net
21,571
12,694
34,265
Inventory
20,005
11,014
31,019
Total current assets before settlement assets
302,421
46,811
(148,726)
200,506
Settlement assets
369
22,321
22,690
Total current assets
302,790
69,132
(148,726)
223,196
Property, plant and equipment, net
5,389
18,489
23,878
Operating lease right-of-use
3,611
728
4,339
Equity-accounted investments
7,217
73
7,290
(25,888)
4(c)
Goodwill
26,239
25,888
155,253
4(b)
181,492
(24,227)
4(c)
Intangible assets, net
288
24,227
163,583
4(c)
163,871
Deferred income taxes
868
850
1,758
4(f)
3,476
Other long-term assets, including reinsurance assets
77,821
49
77,870
TOTAL ASSETS
424,223
139,436
121,753
685,412
LIABILITIES
Current liabilities
Short-term credit facilities for ATM funding
47,960
-
47,960
15,316
4(h)
Short-term credit facilities
-
15,237
(7,598)
4(h)
22,955
Accounts payable
3,539
12,138
15,677
Other payables
30,248
3,777
3,578
4(d)
37,603
Operating lease liability - current
2,516
433
2,949
(18,421)
4(h)
Current portion of long-term borrowings
-
18,421
3,531
4(h)
3,531
Income taxes payable
271
595
(1,533)
4(f)
(667)
Total current liabilities before settlement obligations
84,534
50,601
(5,127)
130,008
Settlement obligations
369
22,321
22,690
Total current liabilities
84,903
72,922
(5,127)
152,698
(6,784)
4(c)
Deferred income taxes
10,402
5,655
45,803
4(c)
55,076
Operating lease liability - long term
1,281
346
1,627
66,592
4(h)
(347)
4(h)
(25,955)
4(h)
4
70,240
4(e)
Long-term borrowings
-
25,955
(1,191)
4(e)
135,294
Other long-term liabilities, including insurance policy liabilities
2,391
-
2,391
TOTAL LIABILITIES
98,977
104,878
143,231
347,086
Redeemable common stock
84,979
-
84,979
EQUITY
LESAKA EQUITY:
Common stock
80
-
-
80
Preferred stock
-
-
-
(10,730)
4(f)
(43,331)
4(c)
Other invested equity
34,415
19,646
4(i)
-
Additional paid-in-capital
303,804
-
16,658
4(a)
320,462
Treasury shares, at cost
(286,951)
-
(286,951)
Accumulated other comprehensive loss
(157,879)
(32)
32
4(i)
(157,879)
Retained earnings
381,213
-
(3,578)
4(d)
377,635
Total Lesaka equity
240,267
34,383
(21,303)
253,347
Non-controlling interest
-
175
(175)
4(f)
-
TOTAL EQUITY
240,267
34,558
(21,478)
253,347
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK
AND SHAREHOLDERS’ EQUITY
424,223
139,436
121,753
685,412
See accompanying notes to unaudited pro forma combined financial statements.
5
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the six months ended December 31, 2021
(in $ ‘000, except per share data or unless otherwise indicated)
Lesaka
Connect
Note 2
Transaction
accounting
adjustments
Notes
Proforma
REVENUE
65,618
169,728
235,346
EXPENSE
Cost of goods sold, IT processing, servicing and support
44,787
145,593
190,380
Selling, general and administration
38,188
10,497
1,450
4(g)
50,135
(1,608)
4(c)
Depreciation and amortization
1,621
3,263
8,950
4(c)
12,226
Transaction costs related to Connect Group acquisition
1,674
486
2,160
OPERATING (LOSS) INCOME
(20,652)
9,889
(8,792)
(19,555)
UNREALIZED LOSS RELATED TO FAIR VALUE ADJUSTMENT
TO CURRENCY OPTIONS
2,429
2,429
INTEREST INCOME
702
195
(115)
4(a)
782
2,995
4(e)
(2,204)
4(h)
INTEREST EXPENSE
1,581
2,849
3,089
4(h)
8,310
(LOSS) INCOME BEFORE INCOME TAX EXPENSE
(23,960)
7,235
(12,787)
(29,512)
(451)
4(c)
2,506
4(c)
(617)
4(h)
INCOME TAX EXPENSE
284
1,826
617
4(h)
4,165
NET (LOSS) INCOME BEFORE (LOSS) EARNINGS FROM
EQUITY-ACCOUNTED INVESTMENTS
(24,244)
5,409
(14,842)
(33,677)
(LOSS) EARNINGS FROM EQUITY-ACCOUNTED
INVESTMENTS
(1,156)
105
(1,051)
NET INCOME FROM CONTINUING OPERATIONS
(25,400)
5,514
(14,842)
(34,728)
LESS (ADD): NET INCOME (LOSS) ATTRIBUTABLE TO NON-
CONTROLLING INTEREST
-
48
(48)
(j)
-
NET (LOSS) INCOME ATTRIBUTABLE TO LESAKA
(25,400)
5,466
(14,794)
(34,728)
Net loss per share, in United States dollars
:
Basic loss attributable to Lesaka shareholders
(0.44)
(0.56)
Diluted loss attributable to Lesaka shareholders
(0.44)
(0.56)
See accompanying notes to unaudited pro forma combined financial statements.
6
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the year ended June 30, 2021
(in $ ‘000, except per share data or unless otherwise indicated)
Lesaka
Connect
Note 2
Transaction
accounting
adjustments
Notes
Proforma
REVENUE
130,786
305,691
436,477
EXPENSE
Cost of goods sold, IT processing, servicing and support
96,248
270,722
366,970
9,544
4(f)
2,367
4(f)
Selling, general and administration
84,063
15,573
2,763
4(g)
114,310
(3,065)
4(c)
Depreciation and amortization
4,347
7,332
17,055
4(c)
25,669
Transaction costs related to Connect Group acquisition
-
76
3,578
4(d)
3,654
OPERATING (LOSS) INCOME
(53,872)
11,988
(32,242)
(74,126)
CHANGE IN FAIR VALUE OF EQUITY SECURITIES
49,304
49,304
LOSS ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENT -
BANK FRICK
472
472
LOSS ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENT
13
13
INTEREST INCOME
2,416
207
(307)
4(a)
2,316
5,404
4(e)
(4,199)
4(h)
INTEREST EXPENSE
2,982
4,076
6,316
4(h)
14,579
(LOSS) INCOME BEFORE INCOME TAX EXPENSE
(5,619)
8,119
(40,070)
(37,570)
(2,672)
4(f)
(663)
4(f)
(860)
4(c)
4,776
4(c)
(1,176)
4(h)
INCOME TAX EXPENSE
7,560
2,332
1,176
4(h)
10,473
NET (LOSS) INCOME BEFORE LOSS FROM EQUITY-
ACCOUNTED INVESTMENTS
(13,179)
5,787
(40,651)
(48,043)
LOSS FROM EQUITY-ACCOUNTED INVESTMENTS
(24,878)
-
(24,878)
NET INCOME FROM CONTINUING OPERATIONS
(38,057)
5,787
(40,651)
(72,921)
LESS (ADD): NET INCOME (LOSS) ATTRIBUTABLE TO NON-
CONTROLLING INTEREST
-
73
(73)
(j)
-
NET (LOSS) INCOME ATTRIBUTABLE TO LESAKA
(38,057)
5,714
(40,578)
(72,921)
Net loss per share, in United States dollars
:
Basic loss attributable to Lesaka shareholders
(0.67)
(1.18)
Diluted loss attributable to Lesaka shareholders
(0.67)
(1.18)
See accompanying notes to unaudited pro forma combined financial statements.
7
LESAKA TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. Basis of presentation
The accompanying unaudited pro forma combined financial statements are prepared under U.S. GAAP and present the pro forma financial
position and results of operations of the combined company based on the historical financial information of the Company and Connect and
after giving effect to the Acquisition and certain adjustments which we believe to be reasonable and factually supportable, which are described
in these notes. The Acquisition has been recorded using the purchase method of accounting, with the Company as the acquirer. Please refer
to “Overview” for further discussion of the basis of presentation of these unaudited pro forma combined financial statements.
Certain Connect balances have been reclassified to conform to the balance sheet and statement of operations presentation of the Company as
described in Note 2.
2. Combined Connect balance sheet and statements of operations
(a) Combined balance sheet
The table below presents Connect’s combined balance sheet, in ZAR, as of February 28, 2022, adjusted for reclassifications to conform with
Lesaka’s presentation, and then converted to USD, translated using the exchange rate applicable as of December 31, 2021):
Connect
Reclassifications
Notes
Connect
Connect
ZAR '000
ZAR '000
ZAR '000
USD '000
Assets
Non-current assets
Property, plant and equipment
294,543
-
294,543
18,489
Goodwill
412,413
-
412,413
25,888
Intangible assets
385,943
-
385,943
24,227
Investments in associates
1,169
-
1,169
73
Loans to shareholders
784
(784)
(i)
-
-
Deferred tax
13,537
-
13,537
850
Operating lease right-of-use
11,602
-
11,602
728
Other long-term assets, including reinsurance assets
-
784
(i)
784
49
Total long-term assets
1,119,991
-
1,119,991
70,304
Current assets
Inventories
175,453
-
175,453
11,014
Current tax receivable
6,241
(6,241)
(ii)
-
-
Trade and other receivables
339,315
(195,980)
(ii)(iii)
143,335
8,997
Finance loans receivable, net
-
202,221
(iii)
202,221
12,694
Cash and cash equivalents
580,302
(355,583)
(iv)
224,719
14,106
Settlement assets
-
355,583
(iv)
355,583
22,321
Total current assets
1,101,311
-
1,101,311
69,132
Total assets
2,221,302
-
2,221,302
139,436
Equity and liabilities
Equity attributable to equity holders of parent
Foreign currency translation reserve
(516)
-
(516)
(32)
Other invested equity
548,257
-
548,257
34,415
Total invested equity attributable to Parent entities
547,741
-
547,741
34,383
Non-controlling interest
2,789
-
2,789
175
Total equity
550,530
-
550,530
34,558
Non-current liabilities
Loans from financial institutions
413,478
-
413,478
25,955
8
Operating lease liability - long-term
5,513
-
5,513
346
Deferred tax
90,089
-
90,089
5,655
Total long-term liabilities
509,080
-
509,080
31,956
Current liabilities
Loans from financial institutions
536,190
(242,733)
(v)
293,457
18,421
Current tax payable
9,472
-
9,472
595
Accounts payable
-
193,369
(vi)
193,369
12,138
Trade and other payables
609,136
(548,952)
(vi)(vii)
60,184
3,777
Operating lease liability - current
6,894
-
6,894
433
Bank overdraft
-
242,733
(v)
242,733
15,237
Settlement obligations
-
355,583
(vii)
355,583
22,321
Total current liabilities
1,161,692
-
1,161,692
72,922
Total liabilities
1,670,772
-
1,670,772
104,878
Total equity and liabilities
2,221,302
-
2,221,302
139,436
(i) Loans to shareholders reclassified to other long-term assets, including reinsurance assets in Lesaka’s balance sheet;
(ii) Current tax receivable reclassified to accounts receivable, net and other receivables in Lesaka’s balance sheet;
(iii) Loans to customers (net of allowance for doubtful debts) included within Connect’s trade and other receivables reclassified to Finance
loans receivable, net in Lesaka’s balance sheet;
(iv) Cash held by Cash Connect Collateral Holdings Trust included within cash and cash equivalents represents funds held on behalf of
customers with an equivalent amount recorded as the settlement control payable included in Connect’s trade and other payables. The cash
held has been reclassified from cash and cash equivalents to settlement assets in Lesaka’s balance sheet;
(v) Overdraft and revolving credit facilities included within Connect’s current liabilities - loans from financial institutions are short-term
credit facilities and have been reallocated from loans from financial institutions to short-term credit facilities in Lesaka’s balance sheet;
(vi) Connect’s trade payables included within trade and other payables have been reclassified to accounts payable in Lesaka’s balance
sheet;
(vii) As noted in (iv) above, funds held on behalf of customers and due to customers is included in the settlement control payable included
in Connect’s trade and other payables and has been reclassified from trade and other payables to settlement liabilities in Lesaka’s balance
sheet.
9
(b) Combined statements of operations
The table below presents Connect’s combined statement of operations, in ZAR, for the six months ended February 28, 2022, adjusted for
reclassifications to conform with Lesaka’s presentation, and then converted to USD, translated using the average exchange rate for Lesaka’s
six months ended December 31, 2021
Connect
Reclassifications
Notes
Connect
Connect
ZAR '000
ZAR '000
ZAR '000
USD '000
Revenue
2,497,767
43,882
(i)
2,541,649
169,728
Cost of sales
(2,204,641)
24,405
(ii)
(2,180,236)
(145,593)
Gross profit
293,126
68,287
361,413
24,135
Other income
52,221
(52,221)
(i)(iii)(iv)
-
-
Operating expenses
(195,696)
38,506
(iii)(v)(vi)
(157,190)
(10,497)
Depreciation and amortisation
(48,867)
(v)
(48,867)
(3,263)
Transaction costs related to Connect Group acquisition
(7,271)
(vi)
(7,271)
(486)
Operating profit
149,651
(1,566)
148,085
9,889
Finance income
2,914
2,914
195
Interest paid
(42,658)
(42,658)
(2,849)
Profit before taxation
109,907
(1,566)
108,341
7,235
Taxation
(27,342)
(27,342)
(1,826)
Profit after tax before earnings (loss) from equity-
accounted investment
82,565
(1,566)
80,999
5,409
Earnings (loss) from equity-accounted investment
-
1,566
(iv)
1,566
105
Profit for the year
82,565
-
82,565
5,514
Other comprehensive income
-
-
-
Total comprehensive income/(loss) for the year
82,565
-
82,565
5,514
Non-controlling interest
717
717
48
Total comprehensive income/(loss) attributable to
Connect
81,848
-
81,848
5,466
(i) Certain items presented within Connect’s other income reclassified to revenue in Lesaka’s statement of operations;
(ii) Amortization included within cost of sales allocated to depreciation and amortization in Lesaka’s statement of operations;
(iii) Certain items presented within other income reclassified to selling, general and administration in Lesaka’s statement of operations;
(iv) Earnings from equity-accounted investments presented within other income reclassified to loss from equity-accounted investments in
Lesaka’s statement of operations;
(v) Depreciation included within operating expenses allocated to depreciation and amortization in Lesaka’s statement of operations;
(vi) Transaction costs related to the Connect Group acquisition included within operating expenses allocated to a separate caption in
Lesaka’s statement of operations.
10
The table below presents Connect’s combined statement of operations, in ZAR, for the twelve months ended August 31, 2021, adjusted for
reclassifications to conform with Lesaka’s presentation, and then converted to USD, translated using the average exchange rate for Lesaka’s
year ended June 30, 2021:
Connect
Reclassifications
Notes
Connect
Connect
ZAR '000
ZAR '000
ZAR '000
USD '000
Revenue
4,788,302
16,000
(i)
4,804,302
305,691
Cost of sales
(4,308,638)
53,925
(ii)
(4,254,713)
(270,722)
Gross profit
479,664
69,925
549,589
34,969
Other income
47,329
(47,329)
(i)(iii)
-
-
Operating expenses
(338,582)
93,838
(iii)(iv)(v)
(244,744)
(15,573)
Depreciation and amortisation
(115,234)
(iv)
(115,234)
(7,332)
Transaction costs related to Connect Group acquisition
-
(1,200)
(v)
(1,200)
(76)
Operating profit
188,411
-
188,411
11,988
Finance income
3,246
3,246
207
Interest paid
(64,053)
(64,053)
(4,076)
Profit before taxation
127,604
-
127,604
8,119
Taxation
(36,651)
(36,651)
(2,332)
Profit after tax before earnings (loss) from equity-
accounted investment
90,953
-
90,953
5,787
Earnings (loss) from equity-accounted investment
-
-
-
-
Profit for the year
90,953
-
90,953
5,787
Other comprehensive income
-
-
-
Total comprehensive income/(loss) for the year
90,953
-
90,953
5,787
Non-controlling interest
1,140
1,140
73
Total comprehensive income/(loss) attributable to
Connect
89,813
89,813
5,714
(i) Certain items presented within Connect’s other income reclassified to revenue in Lesaka’s statement of operations;
(ii) Amortization included within cost of sales allocated to depreciation and amortization in Lesaka’s statement of operations;
(iii) Certain items presented within other income reclassified to selling, general and administration in Lesaka’s statement of operations;
(iv) Depreciation included within operating expenses allocated to depreciation and amortization in Lesaka’s statement of operations;
(v) Transaction costs related to the Connect Group acquisition included within operating expenses allocated to a separate caption in Lesaka’s
statement of operations.
11
3. Acquisition of Connect
The following table sets forth the components of the purchase price for the Acquisition (using the USD/ ZAR closing exchange rate as of
April 13, 2022, for cash paid at closing):
USD '000
Cash paid at closing to former Connect shareholders, comprising:
236,697
Utilization of existing cash reserves
147,322
Bank borrowings
70,240
Increase in Connect bank borrowings
(1)
19,135
Lesaka shares to be issued pursuant to the Acquisition
(2)
16,658
Total purchase consideration
253,355
(1) Connect refinanced its borrowings prior to closing the transaction and the Company utilized certain of the increased borrowin gs (which
were included in Connect’s closing balance sheet) at the date of the Acquisition, as part of the post-closing transaction steps, to fund the
Acquisition.
(2) Calculated as 3,185,079 shares of Lesaka common stock multiplied by the April 13, 2022, closing price on the NasdaqGS of $5.23.
The following table sets forth the preliminary allocation of the purchase price , translated at the exchange rate as of December 31, 2021:
USD '000
Cash and cash equivalents
33,028
Accounts receivable
8,997
Finance loans receivable
12,694
Inventory
11,014
Settlement assets
22,321
Property, plant and equipment
18,489
Operating lease right-of-use asset
728
Equity-accounted investment
73
Goodwill
155,253
Intangible assets
163,583
Deferred income tax assets
2,608
Other long-term assets
49
Trade payables
(12,138)
Other payables
(3,777)
Short-term borrowings
(22,955)
Operating lease liability - current
(433)
Current portion of long-term borrowings
(3,531)
Income taxes (payable) receivable
938
Settlement obligations
(22,321)
Deferred income taxes - long-term liabilities
(44,674)
Operating lease liability - long-term
(346)
Long-term borrowings
(66,245)
Total purchase price
253,355
The preliminary purchase price allocation is based on management estimates as of June 30, 2022, and may be adjusted up to one year
following the closing of the Acquisition. Management has not yet completed its valuation analysis and calculations necessary to finalize the
determination of the fair value of the assets acquired and liabilities assumed, along with the related allocations of goodwill and intangible
assets. We expect to finalize the purchase price allocation on or before December 31, 2022. The actual amounts and the allocation between
net tangible and intangible assets ultimately recorded may differ materially from the information presented in these unaudited pro forma
combined financial statements, including property, plant and equipment, identifiable intangible assets and residual goodwill.
12
4. Pro forma adjustments
The following are descriptions of each of the pro forma adjustments included in the unaudited pro forma combined financial statements:
(a) Reduction in cash and cash equivalents and interest income
Represents the estimated reduction in interest income of $0.1 million and $0.3 million on the Company’s cash reserves of $124.4 million
(which is the USD equivalent of the ZAR cash reserves utilized using the $:ZAR exchange rate of 17.197978 on July 1, 2020) for the six
months ended December 31, 2021, and the year ended June 30, 2021, which was used to fund a portion of the Acquisition at an assumed
pre-tax USD interest rate of approximately 0.19% and 0.24%, respectively. The Company was in a net operating loss carry forward
position (with an allowance for unutilized net operating loss carryforwards created in full) and therefore there was no net tax benefit
during the periods presented.
The components of the cash paid of $236.7 million is presented in Note 3. The amount is presented as a pro forma adjustment to reduce
cash and cash equivalents in the pro forma combined balance sheet as of December 31, 2021.
(b) Goodwill
The amount of $155.3 million represents the excess of the purchase price over the fair value of net assets acquired as presented within the
preliminary purchase price allocation in Note 2 above.
(c) Acquired intangible assets and amortization expense and reversal of Connect pre-acquisition intangible assets
Represents the portion of the purchase price allocated to Connect’s intangible assets acquired, at estimated fair values based on
management’s estimates. As of February 28, 2022, these assets (comprising goodwill and intangible assets) had a carrying value on
Connect’s balance sheet of approximately $50.1 million. As noted above, this identification and estimation of fair value is provisional
and may change when the final purchase price allocation is made. Since the tax basis of these identifiable intangible assets is less than
their accounting basis, the purchase price allocated to these assets results in additional deferred tax liabilities.
13
The table below presents the fair value of the acquired intangible assets (in ZAR and USD) the estimated used life (in years) of these
acquired intangible assets and the amortization expense and related tax effect (in ZAR and USD) for the identified periods presented:
Six months ended
December 31,
Year ended
June 30, 2021
Fair value
Fair value
Estimated
useful life
Intangible
asset
amortizatio
n expense
Deferred
tax impact
Intangible
asset
amortizatio
n expense
Deferred
tax impact
ZAR '000
USD '000
(in years)
USD '000
(1)
USD '000
USD '000
(2)
USD '000
Finite lived intangibles assets
Customer relationships
297,870
18,698
8
1,243
348
2,369
663
Integrated network
2,075,970
130,314
10
6,932
1,941
13,209
3,699
Trade names
232,120
14,571
10
775
217
1,477
414
Total
2,605,960
163,583
8,950
2,506
17,055
4,776
Deferred tax liabilities
Customer relationships
83,404
5,235
Integrated network
581,272
36,488
Trade names
64,994
4,080
Total
729,670
45,803
(1) Using the average exchange rate for the six months ended December 31, 2021, the amortization expense related to these intangible
assets was $9.0 million. The deferred tax effect of $2.5 million related to this adjustment is included on the income tax expense line in
the unaudited pro forma combined statement of operations.
(2) Using the average exchange rate for the year ended June 30, 2021, the total annual amortization expense related to these intangible
assets was $17.1 million. The deferred tax effect of $4.8 million related to this adjustment is included on the income tax expense line in
the unaudited pro forma combined statement of operations.
14
The table below presents Connect’s intangible assets (including goodwill) and related deferred tax liabilities that have been reversed on
acquisition (in ZAR and USD), and the reversal of Connect’s amortization expense and related tax effect in its historical accounts for the
identified periods presented (in ZAR and USD):
Six months ended
Twelve months
ended
February 28, 2022
August 31, 2021
ZAR '000
USD '000
USD '000
(1)
USD '000
(2)
As of December 31, 2021
Goodwill reversed on acquisition
412,413
25,888
Intangible assets, net reversed on acquisition
385,943
24,227
Total intangible assets, net reversed
798,356
50,115
Deferred tax liability reversed on acquisition
(108,073)
(6,784)
Impact on other invested equity
690,283
43,331
Pro forma six months ended December 31, 2021
Intangible asset amortization reversed
24,084
1,608
Deferred tax related to intangible asset amortization reversed
6,759
451
Pro forma year ended June 30, 2021
Intangible asset amortization reversed
48,167
3,065
Deferred tax related to intangible asset amortization reversed
13,518
860
(1) Using the average exchange rate for the six months ended December 31, 2021. This adjustment is included in the unaudited pro forma
combined statement of operations for the six months ended December 31, 2021.
(2) Using the average exchange rate for the year ended June 30, 2021. This adjustment is included in the unaudited pro forma combined
statement of operations for the year ended June 30, 2021.
(d) Transaction costs adjustments
Represents the Company’s estimate of the expected Connect acquisition costs of $3.6 million owing to external professional advisors for
services provided which are not reflected in the Company’s December 31, 2021 consolidated balance sheet. These costs have been accrued
as a current liability. The Company does not expect to deduct these expenses for tax purposes. Because the Company is required to
expense these costs as they are incurred, it has charged them to retained earnings as of December 31, 2021. This adjustment is also
included in the unaudited pro forma combined statement of operations for the year ended June 30, 2021. There were no significant
transaction costs actually incurred by the Company during the year ended June 30, 2021. These costs will not affect the Company’s
statement of operations beyond 12 months after the acquisition date.
The Company’s consolidated statement of operations for the six months ended December 31, 2021, include transaction costs of $1.7
million.
Connect’s combined statement of operations for the six months ended February 28, 2022, and year ended August 31, 2021, include
transaction costs of $0.5 million and $0.1 million (translated at average exchange rates for the periods identified), respectively, paid on
behalf of the sellers.
(e) Borrowings, non-refundable deal origination fees and interest expense
The Company used aggregate borrowings of ZAR 1.1 billion ($70.2 million, translated at the exchange rate as of December 31, 2021) to
partially fund the Acquisition and procured these lending facilities (Facility G and Facility H) from FirstRand Bank Limited acting through
Rand Merchant Bank division (“RMB”) and concluded agreements (“Loans Documents”) in January 2022 to arrange this funding.
The Company paid non-refundable deal origination fees of ZAR 19.0 million ($1.2 million, translated at exchange rates applicable as of
December 31, 2021) upon drawing down the available funding under the Loan Documents. Accordingly, an amount of $1.2 million is
included in accounts payable and long-term borrowings (as prepaid facility fees) as of December 31, 2021. The non -refundable deal
origination fees are amortized over the applicable lending period using the effective interest rate method.
15
Interest on Facility G and Facility H is payable quarterly in arrears. Interest on Facility G is based on the 3-month Johannesburg Interbank
Agreed Rate (“JIBAR”) in effect from time to time plus a margin of (i) 3.00% per annum for the first nine months occurring after the
effective date (as defined in the Loan Documents); and then (ii) from the date after the nine month period in (i), (x) 2.50% per annum if
the Facility G balance outstanding is less than or equal to ZAR 250.0 million, or (y) 3.00% per annum if the Facility G balance is between
ZAR 250.0 million to ZAR 450.0 million, or (z) 3.50% per annum if the Facility G balance is greater than ZAR 450.0 million. Interest on
Facility H is based on JIBAR plus a margin of 2.00% per annum and increase by a further 2.00% per annum in the event of default (as
defined in the Loan Documents).
The average JIBAR during the six months ended December 31, 2021, was 3.68% and, together with the applicable margin of 3.20%, the
interest expense for this period included in the pro forma combined statement of operations has been calculated using a rate of 6.89% and
the ZAR 1.1 billion borrowings outstanding. The average JIBAR during the year ended June 30, 2021, was 3.64% and, together with the
applicable margin of 2.82%, the interest expense for this period included in the pro forma combined statement of operations has been
calculated using a rate of 6.46% and the ZAR 1.1 billion borrowings outstanding .
The table below presents the borrowings utilized (translated to USD at the exchange rates applicable as of December 31, 2021) by the
Company, the repayment terms, the interest rate determination, and the non -refundable deal origination fees paid included in the pro
forma combined balance sheet as of December 31,2021, and the aggregated amortization of the deal origination fees and interest expense
during the six months ended December, 2021, and the year ended June 30, 2021, included in the pro forma combined statements of
operations (translated to USD at the applicable average exchange rate applicable for the periods presented):
ZAR '000
USD '000
Repayment date
Interest rate
Borrowing utilized, comprising:
1,118,975
70,240
Facility G
750,000
47,079
October 14, 2023
JIBAR plus variable margin
Facility G, deal origination costs
18,975
1,191
October 14, 2023
JIBAR plus variable margin
Facility H
350,000
21,970
October 14, 2023
JIBAR plus 2%
Less: deal original fees accrued
18,975
1,191
Borrowing utilized less deal origination fees
1,100,000
69,049
Six months ended
Year ended
December 31, 2021
June 30, 2021
ZAR '000
USD '000
(1)
USD '000
(2)
Deal origination fees amortized
6,325
422
Interest expense
38,527
2,573
Total interest expense
44,852
2,995
Deal origination fees amortized
12,650
805
Interest expense
72,283
4,599
Total interest expense
84,933
5,404
(1) Using the average exchange rate for the six months ended December 31, 2021. This adjustment is included in the unaudited pro forma
combined statement of operations for the six months ended December 31, 2021.
(2) Using the average exchange rate for the year ended June 30, 2021. This adjustment is included in the unaudited pro forma combined
statement of operations for the year ended June 30, 2021.
A change of one percentage point in JIBAR results in a change of ZAR 11.2 million ($0.7 million) in the annual interest expense.
16
(f) Pre-closing payments made by Connect
Connect was required to make certain pre -closing payments as a condition to the sales agreement. All amounts in this note translated to
USD at the exchange rates applicable as of December 31, 2021 for balance sheet items and the average rates for the six months ended
December 31, 2021, and the year ended June 30, 2021, for statement of operations items.
Prior to closing, Connect was required to pay:
●
the Connect CEO a restraint of trade payment of ZAR 150.0 million ($9.4 million in the pro forma combined balance sheet). The
Company expects to qualify for a tax deduction and will deduct the amount rateably over a period of three years. The Company
recorded a pro forma adjustment of ZAR 150.0 million ($9.5 million), tax impact of $2.7 million, in its unaudited pro forma
combined statements of operations for the year ended June 30, 2021. This expense is considered non-recurring;
●
cash bonuses of ZAR 37.2 million ($2.3 million in the pro forma combined balance sheet) to a group of identified Connect
employees). The Company expects to qualify for a tax deduction and will deduct the amount in the period the expense was
incurred. The Company recorded a pro forma adjustment of ZAR 37.2 million ($2.4 million), tax impact of $0.7 million, in its
unaudited pro forma combined statements of operations for the year ended June 30, 2021. This expense is considered non-
recurring;
●
ZAR 26.4 million ($1.7 million in the pro forma combined balance sheet) to repurchase Connect’s issued and outstanding
preference shares. Connect settled this transaction in two parts, the first was a dividend distribution of ZAR 24.0 million and the
balance as the acquisition of the preference shares at historical cost. This payment did not impact the unaudited pro forma
combined statements of operations for the year ended June 30, 2021, and for the six months ended December 31, 2021; and
●
ZAR 12.5 million ($0.8 million in the pro forma combined balance sheet) to acquire its remaining non-controlling interest in a
subsidiary. This transaction has been accounted for as a transaction between owners and a loss on acquisition of the outstanding
interest was recorded directly in equity.
The table below presents a summary of pre-closing payments made and the allocation of these adjustments in the pro forma combined
balance sheet:
ZAR '000
USD '000
Restraint payment - Gross (A)
150,000
9,416
Restraint payment - Tax Payable (B)
14,000
879
Restraint payment - Deferred tax assets (C)
28,000
1,758
Restraint payment, net (D)
108,000
6,779
Bonuses payment - Gross (A)
37,200
2,335
Bonuses payment - Tax Payable (B)
10,416
654
Bonuses payment, net (D)
26,784
1,681
Preferences share repurchase payment (A)
26,446
1,660
Preference shares (allocate to Other equity items (D)
2,446
154
Loss on repurchase (allocate to Other equity items (D))
24,000
1,506
Buy out non-controlling interest payment (A)
12,500
785
Non-controlling interest (E)
2,789
175
Loss on repurchase (allocate to Other equity items (D))
9,711
610
Allocated to:
Cash and cash equivalents (sum of (A))
226,146
14,196
Tax payable (sum of (B))
24,416
1,533
Deferred tax asset (sum of (C))
28,000
1,758
Other invested equity (sum of (D))
170,941
10,730
Non-controlling interest (sum of (E))
2,789
175
17
(g) Stock-based compensation
The Company agreed to award a group of identified Connect employees 1,250,486 shares of restricted stock upon closing of the
Acquisition. The Company also awarded this group 1,250,486 restricted stock units which award contains an equalization mechanism to
maintain a return of $7.50 per share of restricted stock upon vesting. The conversion of restricted stock units to shares cannot exceed 50%
(or 625,243 shares) under the terms of the award. These awards vest equally over a period of three years commencing on the first
anniversary of the closing of the Acquisition.
The estimated grant date fair value of the shares of restricted stock has been determined using the 1,250,486 shares of restricted stock and
the closing price of the Company’s stock on Nasdaq on the closing date ($5.23). The estimated grant date fair value of the restricted stock
units has been determined using the 1,250,486 restricted stock units and an estimate price per unit ($2.62) assuming that only 25% of the
restricted stock units will vest based on the impact of the equalization mechanism. The Company is currently seeking tax advice to
determine whether it may claim a tax deduction of these stock-based compensation charges for tax purposes and therefore no tax-related
adjustment has been made to the pro forma adjustment.
The table below presents the grant date fair value of the awards and estimated stock-based compensation changes included in the pro
forma combined statement of operations for the periods presented (translated at applicable exchange rates for the periods identified):
Six months ended
Year ended
December 31, 2021
June 30, 2021
ZAR '000
USD '000
USD '000
(1)
USD '000
(2)
Estimated grant date fair value:
1,250,486 shares of restricted stock granted to employees
104,186
6,540
1,250,486 shares of restricted units granted to employees
26,094
1,638
Total
130,280
8,178
Stock-based compensation charges
21,713
1,450
Stock-based compensation charges
43,427
2,763
(1) Using the average exchange rate for the six months ended December 31, 2021. This adjustment is included in the unaudited pro forma
combined statement of operations for the six months ended December 31, 2021.
(2) Using the average exchange rate for the year ended June 30, 2021. This adjustment is included in the unaudited pro forma combined
statement of operations for the year ended June 30, 2021.
(h) Refinancing of Connect lending facilities
Connect refinanced its long-term borrowings pursuant to the Acquisition.
The Connect facilities include (i) an overdraft facility (general banking facility) of ZAR 244.0 million; (ii) Facility A of ZAR 700.0
million (a long-term facility with a bullet repayment); (iii) Facility B of ZAR 350.0 million (a long-term facility with amortizing
repayments commencing September 2022); and (iv) an asset-backed facility of ZAR 67.1 million. The amount available under the general
banking facility will reduce to ZAR 205.0 million in mid-November 2022. CCMS paid a non-refundable structuring fee of approximately
ZAR 5.5 million. Interest on Facility A and Facility B is payable quarterly based on JIBAR plus a margin, of approximately 3.75%, in
effect from time to time.
An adjustment has been made in the pro forma combined balance sheet to record the new borrowings utilized by Connect and to eliminate
the existing Connect borrowings as they were repaid on closing.
18
The table below presents the (i) Connect borrowings repaid, (ii) borrowings utilized (translated to USD at the exchange rates applicable
as of December 31, 2021) by Connect to settle its existing borrowings and the non-refundable deal origination fees paid included in the
pro forma combined balance sheet as of December 31, 2021, (iii) the aggregated amortization of the deal origination fees and interest
expense during the six months ended December, 2021, and the year ended June 30, 2021, and (iv) the reversal of the amounts of interest
under the existing Connect borrowings that were extinguished at closing, included in the pro forma combined statements of operations
(translated to USD at the applicable average exchange rate applicable for the periods presented):
Six months ended
Twelve months
ended
February 28, 2022
August 31, 2021
ZAR '000
USD '000
USD '000
(1)
USD '000
(2)
Borrowing repaid
827,974
51,974
Short-term credit facilities
121,040
7,598
Current portion of long-term borrowings
293,456
18,421
Long-term borrowings
413,478
25,955
Borrowing utilized
1,361,093
85,439
Short-term credit facilities
244,000
15,316
Current portion of long-term borrowings
56,250
3,531
Long-term borrowings
1,060,843
66,592
Less: deal original fees accrued
5,520
347
Borrowing utilized less deal origination fees
1,355,573
85,092
Deal origination fees amortized
552
37
Interest expense
45,705
3,052
Total interest expense
46,257
3,089
Tax impact on interest expense
(3)
9,240
617
Deal origination fees amortized
1,104
70
Interest expense
98,167
6,246
To
tal interest expense
99,271
6,316
Tax impact on interest expense
(3)
18,480
1,176
Interest expense under repaid lending facilities reversed
33,000
2,204
Tax expense adjustment related to reversal of interest
adjustment
(3)
9,240
617
Interest expense under repaid lending facilities reversed
66,000
4,199
Tax expense adjustment related to reversal of interest
adjustment
(3)
18,480
1,176
(1) Using the average exchange rate for the six months ended December 31, 2021. This adjustment is included in the unaudited pro forma
combined statement of operations for the six months ended December 31, 2021.
(2) Using the average exchange rate for the year ended June 30, 2021. This adjustment is included in the unaudited pro forma combined
statement of operations for the year ended June 30, 2021.
(3) The amount of interest deductible for tax purposes in South Africa is subject to a limitation. The Company does not expect to obtain
an incremental deduction from the higher interest expense and therefore has capped the pro forma tax deduction of interest expense on
the new borrowing at the same amount as for the refinanced Connect borrowings .
A change of one percentage point in JIBAR results in a change of ZAR 13.1 million ($0.8 million) in the annual interest expense.
Represents the elimination of Connect’s other invested equity of $34.4 million, net of closing adjustments in notes (c) and (f), and
accumulated other comprehensive income of $0.03 million acquired by the Company.
19
Represents the elimination of income attributable to non-controlling interests as Connect is a wholly owned by the Company.