Cornerstone FS plc (LON:CSFS), a cloud-based provider of international payment, currency risk management and electronic account services to SMEs, announces that it has entered into a conditional agreement to acquire Capital Currencies Limited.

The total consideration payable for the acquisition is up to £3 million, which is to be satisfied through a mixture of cash, new ordinary shares and convertible loan notes.

Capital Currencies Limited is a Forex broker specialising in the provision of currency exchange and international payments, with high levels of service delivered by experienced personnel. The Directors believe that Capital Currencies is a strong strategic fit for Cornerstone as its client base is primarily UK corporates, with a particular focus on larger SMEs, and over 90% of its revenue is generated by clients that it services directly.

Founded in 2004 by Craig Strong, whose career in foreign exchange services spans over 30 years, Capital Currencies is authorised and regulated by the FCA as an authorised payment institution permitted to provide payment services.

The acquisition is anticipated to be earnings accretive from the current financial year. It is also expected to expand Cornerstone’s presence in its core target market and, in line with the Group’s stated strategy, increase revenue generated by direct clients. By bringing Capital Currencies’ clients onto Cornerstone’s technology platform, the Group expects to benefit from the rationalisation of payments to banking partners across the combined organisation as well as recognise other synergistic savings, such as in compliance costs and overheads.

Craig Strong, along with the rest of the Capital Currencies team, will remain with the business post the Acquisition. Capital Currencies will initially continue to trade under the Capital Currencies brand and the Group will maintain Capital Currencies’ office, which is located in Tunbridge Wells, UK.

According to its unaudited results, in the year ended 31 January 2021 Capital Currencies had a turnover of approximately £0.598 million and generated a profit before tax of approximately £0.34 million. Capital Currencies’ net asset value at 31 January 2021 was approximately £0.12 million.

The consideration payable for the Acquisition consists of £0.586 million in cash on completion subject to customary working capital adjustments with further earn-out consideration payable over the next two years, in a mixture of new ordinary shares and convertible loan notes; the value of which will be dependent on performance and is capped at a maximum total consideration of £3 million.

Any convertible loan notes issued to the sellers under the earn-out payment is for a term of 2 years from the date of issue and the sellers may elect to convert at any time prior to termination date. Any interest is payable quarterly in arrears with the principal repayable at the end of the two-year term. The conversion price per share is at the mid-market price of the Company’s share in the 20 dealing days preceding the issue of the convertible loan notes.

Any consideration shares issued to the sellers under the earn-out payment is priced per share as the sum equal to the average mid-market price of the Company’s share in the 20 dealing days preceding the issue of the consideration shares.

Cornerstone FS also announces its intention to raise a minimum £0.85 million (before expenses) by way of the Placing of new ordinary shares (the “Placing Shares”) and a subscription for new ordinary shares (the “Subscription Shares”), both at a price of 26.5 pence per share. The Company’s brokers have already commenced the Fundraising and it is anticipated to close on 27 January 2022. Certain Directors of the Company have indicated a willingness to subscribe for new ordinary shares by way of the Subscription.

The net proceeds of the fundraising will be used to:

• fund the initial cash consideration and integration costs for Capital Currencies, pay the expenses of the Acquisition and Fundraising; and
• provide additional working capital for the Group.