Cinnober has sold 60% of its subsidiary, Irisium, to KRM22 plc, the technology and software investment company, with a particular focus on risk management in capital markets. London-based Irisium is a real-time market surveillance solution which offers market operators a seamless path from the detection of market abuse to presentable evidence.
The terms of the transaction are:
KRM22 is purchasing 60% of Irisium’s equity and debt from Cinnober for £2.571 million in cash; Cinnober will retain a 40% ownership stake in Irisium.
There is further potential consideration for Cinnober should Irisium achieve certain financial milestones in 2019. Cinnober has the potential to receive £600,000 in the event that Irisium achieves £2.0 million of annualised recurring revenue as at 30 June 2019. This consideration can be satisfied in either cash or ordinary shares of KRM22 at KRM22’s discretion.
As a result of the transaction, Cinnober will report a financial gain, receive a cash inflow, and going forward, will have a reduced cost base.
Veronica Augustsson, CEO of Cinnober Group, said: “Today’s announcement is consistent with our ambition when we acquired Irisium to find a strategic partner to accelerate growth and consolidate the surveillance market. We have strong confidence in KRM22 following a multi-year relationship with its founders and senior leadership team who have extensive experience and knowledge in building SaaS (Software as a Service) solutions.”
KRM22 is a London-listed investment company that invests in, and acquires stakes in, selected technology companies with a focus on risk management software to the capital markets sector. KRM22 completed its initial public offering on London Stock Exchange Group-owned AIM in London on 30 April. KRM22 listed under the ticker “KRM” and went public at 100p per share. As part of the IPO, Cinnober invested £1,200,000 to purchase 1.2 million shares, representing an ownership stake of just over 9.7% in KRM22.
In May 2017 Cinnober acquired the business and assets of Ancoa Software, a UK-based market surveillance specialist company, and rebranded the business to Irisium. Irisium currently has 22 employees, 13 customers and a recurring revenue base of approximately £1.0 million as well as a strong pipeline of prospects. As part of the contract, Cinnober will continue to leverage its sales strength and sell the Irisium offering to its core exchange market, KRM22 will sell to derivatives trading firms and hedge funds and Irisium will sell directly to all other capital markets sectors.
Cinnober is partnering with KRM22, a firm that Cinnober believes will accelerate Irisium’s growth and consolidate the market. Further, as indicated above, Cinnober has taken a 9.7% stake in KRM22 and will thus be exposed to ongoing growth at Irisium, in addition to KRM22’s efforts to consolidate the market.
The impact on Cinnober’s consolidated financial statements is as follows, with amounts to be disclosed in the Q2/18 earnings release, which is scheduled for 23 August.
Cinnober will book a gain from the sale of shares in a subsidiary; this gain will be reflected in net financial items.
Cinnober previously fully consolidated Irisium’s results in its financial statements because Irisium was a wholly-owned subsidiary. Cinnober will now have an asset consisting of shares in an associated company (Irisium). In accordance with Swedish accounting standards, the associated goodwill be amortised over five years on a straight-line basis.
As an associated company, Irisium’s earnings/losses will be reported in the consolidated accounts as part of operating profit.