THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

6 October 2021

FALANX GROUP LIMITED

("Falanx", the "Group" or the "Company")

Sale of Assynt for £4.6 million

Falanx Group Ltd, the AIM listed cyber security company, announces that it has entered into an agreement to dispose of its Assynt Strategic Intelligence Division ("Assynt") for an estimated cash consideration of £4.6 million to Cross Atlantic Solutions LLC ("CAS") (the "Disposal").

Highlights

·    Falanx sells its Strategic Intelligence Division, Assynt, for £4.6 million

·    Strong strategic rationale to sell

·    Following the sale of Assynt, Falanx has become a pure play cyber security business

·    Proceeds of Disposal to be used for potential earnings enhancing acquisitions within cyber security, organic investment into sales and general working capital

Consideration

·    The gross consideration payable by CAS represents an implied value of approximately 0.87 pence per Ordinary Share

Principal reasons for the sale

Falanx previously operated as two separate divisions, namely Cyber Security and Strategic Intelligence (through Assynt). Assynt is a well-recognised and respected business and has a dedicated and expert team in place. However, both service lines and client bases are very different, with cyber focusing on SME's and Assynt focussed on global corporate and governmental users and, as a result, there has only been limited cross-selling. There is also limited scope for operational efficiencies outside of basic back-office sharing.

Accordingly, the Company believes that its best prospects for future growth are by focusing as a pure play business focused on the fast-developing cyber security market, particularly given the sector's strong macro-economic drivers which have accelerated since the start of the COVID-19 pandemic. Cyber security has now become a business essential and not just an optional extra. Falanx Cyber has invested significantly in aligning its services with this market and is now experiencing much greater demand for its penetration testing and cyber security monitoring services, particularly following the launch of its Triarii cyber protection platform. The Cyber Division's channel partners are accelerating their requirements and the spin out of N-Able Inc from SolarWinds Inc., which completed in July 2021, only further increase this potential with improved access into their 25,000 MSPs and 500,000 end users.

The net proceeds of the Disposal, combined with the recently announced Growth Loan facility with BOOST&Co, will give Falanx greater financial resources to make earnings enhancing acquisitions as well as organic investment in sales and marketing, delivery capability and continued service enhancement and innovation.

Falanx Assynt Limited

Assynt provides market-leading geopolitical reporting and analysis focused on key major emerging markets and overarching global themes. Assynt has been recognised by Chambers & Partners, listed in their 2021 rankings as one of only five firms in their top tier of global geopolitical risk providers. Assynt's client base includes some of the largest and most recognised global corporate names.

The Assynt Report focuses on the strategic intelligence needs of global corporates (many of which are headquartered outside of the UK), where it has produced over 1,200 reports analysing key geopolitical events in over 40 countries, including specialist analysis of international jihadist trends and more recently the impact on COVID across the world. In some cases, Assynt's customers request Assynt's embedded analysts to integrate Assynt's geopolitical understanding and business-focused analytical expertise into the host client's operational capabilities.

Assynt has made good progress in developing its recurring revenue model for the provision of strategic intelligence by the provision of embedded analysts and report subscriptions. In the year ended 31 March 2021 it recorded revenues of c£2.1 million and an adjusted EBITDA of £0.1 million.  Assynt made a loss before tax for the year ended 31 March 2021 of £0.06 million.

Overall Group revenues (including Assynt) were £5.24 million for the year ended 31 March 2021, with an Adjusted EBITDA loss of £1.26 million and loss before tax of £3.56 million, of which £2.15 million related to non-cash charges including £1.44 million for the impairment of the investment in Furnace which was spun out in December 2019. Further details on both Assynt and the Group are contained in the Company's announcement of its audited results for the 12 months ended 31 March 2021 released on 29 September 2021.

Transaction details

Falanx Assynt Ltd (including its four overseas wholly owned subsidiaries in the UAE, USA, Hong Kong and Ireland) has been acquired by CAS, a wholly owned subsidiary of Cross Atlantic Solutions Partners LLC, which is backed by funds advised by a US based investment firm focused on investing in information, marketing and tech-enabled services businesses.

The consideration for the Disposal is as follows:

·    overall consideration of £4.6 million in cash on completion ("Consideration") before the deduction of a working capital, adjustment based on completion accounts of Assynt of approximately £0.5 million; and

·    £0.35 million of the Consideration will be held in separate escrow against any potential warranty issues for twelve months from completion. 

As is customary, the Company will make certain warranties and give certain indemnities to CAS in respective of Assynt's historic business and the Company will ensure that a normalised level of working capital remains within Assynt at completion. All of Assynt's employees are transferring as part of the Disposal. Following the Disposal, the Company and CAS have agreed that the Company will provide certain administration services to Assynt until the end of January 2022 as part of an orderly hand over, such services which are governed under a transitional services agreement, and which are provided on an arms-length basis.

Mike Read (CEO) Commented: "I am delighted to announce this transaction.  Falanx is now a pure play Cyber Security business.  Our decision to invest in both our cyber products and services has made Falanx a very good fit with this high growth market. The recent announcements on Triarii and f:CEL have generated interest across our customer base and our major partners. Organisationally, Falanx now has a much simpler structure and the net proceeds of the Disposal give us a strong balance sheet with which to invest further in our products and services, as well as consider earnings enhancing acquisitions to broaden our portfolio."

"We are delighted that Assynt, which has had strong contract wins in recent months, will be in an environment where it can grow further, and I wish Charles Hollis and his team well. They have been great members of the Falanx organisation and will remain our friends."

"Our resultant simplified corporate structure, combined with our well-positioned products, growth opportunities and improving financial performance gives the directors increasing confidence about the Company's future."

The person responsible for this announcement is Ian Selby, CFO.

Enquiries:

About Falanx

Falanx Group Limited, is a global intelligence and cyber defence provider working with blue chip and government clients. For more information: https://www.falanx.com/