Acquisitions

12 Months Ended

Jun. 30, 2022

Acquisitions [Abstract]

Acquisitions

3.ACQUISITIONS

The Company did not make any acquisitions during the years ended June 30, 2021 and 2020. The cash paid, net of cash received related to the Company’s acquisition during the year ended June 30, 2022, is summarized in the table below:

		2022
Total cash paid		$	240,582
Less: cash acquired			38,423
	Total cash paid, net of cash received(1)	$	202,159

(1) – represents the cash paid, net of cash acquired, to acquire a controlling interest in the Connect.

3.ACQUISITIONS (continued)

2022 Acquisitions

April 2022 acquisition of Connect

On October 31, 2021, the Company entered into a Sale of Shares Agreement (the “Sale Agreement”) with the Sellers (as defined in the Sale Agreement), Cash Connect Management Solutions Proprietary Limited (“CCMS”), Ovobix (RF) Proprietary Limited (“Ovobix”), Luxiano 227 Proprietary Limited (“Luxiano”) and K2021477132 (South Africa) Proprietary Limited (“K2021” and together with CCMS, Ovobix and Luxiano, “Connect”). Pursuant to the Sale Agreement, and subject to its terms and conditions, the Company’s wholly-owned subsidiary, Net1 SA, agreed to acquire, and the Sellers agreed to sell, all of the outstanding equity interests and certain claims in Connect. The transaction closed on April 14, 2022.

The total purchase consideration was ZAR 3.8 billion ($258.9 million), comprising ZAR 3.5 billion ($240.6 million) in cash, contingent consideration of ZAR 23.8 million ($1.6 million), and ZAR 241.9 million ($16.7 million) in 3,185,079 shares of the Company’s common stock. The contingent consideration related to a tax matter which was resolved in July 2022, and the consideration is expected to be settled in cash in September 2022. The contingent consideration is included in the caption other payables in the Company’s consolidated balance sheet as of June 30, 2022, refer to Note 13. The 3,185,079 shares of common stock will be issued in three equal tranches on each of the first, second and third anniversaries of the closing and was calculated as ZAR 350.0 million divided by the sum of $7.50 multiplied by the closing date exchange rate (as defined in the Sale Agreement) of $1:ZAR 14.65165. The fair value of the purchase consideration settled in shares of common stock of $16.7 million was 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 closing of the transaction was subject to customary closing conditions, including (i) approval from the competition authorities of South Africa, Namibia and Botswana, (ii) exchange control approval from the financial surveillance department of the South African Reserve Bank, and (iii) obtaining certain third-party consents. In addition, the closing of the transaction was subject to entry into definitive financing agreements by each of Net1 SA and CCMS for an aggregate of ZAR 2.4 billion in debt financing provided by Rand Merchant Bank and satisfying the conditions precedent for funding thereunder, of which ZAR 1.1 billion relates to the financing agreements described below and ZAR 1.3 billion related to finance agreements signed between CCMS and RMB. Of the ZAR 1.3 billion related to CCMS, approximately ZAR 250 million related to new debt as part of the funding of the acquisition. The definitive loan agreements became effective upon closing the transaction, refer to Note 12.

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 workers, 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 Connect 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, or approximately 1.8 million shares, in Lesaka at the date of the Connect 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, or approximately 3.0 million 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 consolidated annual financial statements.

The Company believes that the acquisition significantly advances its vision to transform into the leading fintech platform for underserved consumers and merchants in South Africa. The combination is strategically important because it combines complementary product offerings to drive stronger unit economics, facilitates expansion of the addressable market to informal MSMEs, Connect has an attractive financial profile with strong and profitable growth, merges highly skilled teams with complementary expertise and allows the combined group to better serve the underserved in South Africa through the provision of dignified financial services to people and businesses who are underserved by the financial system.

3.ACQUISITIONS (continued)

2022 Acquisitions (continued)

April 2022 acquisition of Connect (continued)

The preliminary purchase price allocation of the Connect acquisition, translated at the foreign exchange rates applicable on the date of acquisition, is provided in the table below:

Connect
		April 2022
Cash and cash equivalents		$	38,423
Accounts receivable			24,032
Finance loans receivable			15,706
Inventory			11,431
Property, plant and equipment			20,872
Operating lease right of use asset			753
Equity-accounted investment			73
Goodwill			153,693
Intangible assets			179,484
Deferred income taxes assets			2,284
Short term facilities			(16,903)
Accounts payable			(27,914)
Other payables			(4,793)
Operating lease liability – current			(434)
Current portion of long – term borrowings			-
Income taxes payable			(982)
Deferred income taxes liabilities			(50,255)
Operating lease liability - long-term			(319)
Long-term borrowings			(86,960)
Settlement assets			13,561
Settlement liabilities			(12,875)
	Fair value of assets and liabilities on acquisition	$	258,877

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. The purchase price allocation has not been finalized, as management has not yet completed its allocation of the goodwill to the underlying identified reporting units. The Company expects to finalize the purchase price allocation on or before December 31, 2022.

Summarized below is the fair value of the Connect intangible assets acquired and the weighted-average amortization period:

				Fair value as of acquisition date	Weighted-average amortization period (in years)
Finite-lived intangible asset:
	Acquired during the year ended June 30, 2022:
		Connect – integrated platform	$	142,981	10
		Connect – customer relationships		20,516	8
		Connect –brands	$	15,987	10

On acquisition, the Company recognized a deferred tax liability of approximately $50.3 million related to the acquisition of Connect intangible assets during the year ended June 30, 2022.

The Company incurred transaction-related expenditures of $6.0 million during the year ended June 30, 2022, related to the acquisition of Connect.

3.ACQUISITIONS (continued)

2022 Acquisitions (continued)

April 2022 acquisition of Connect (continued)

Pro forma results related to acquisition

The results of Connect’s operations are reflected in the Company’s financial statements from April 14, 2022. The following unaudited pro forma revenue and net income information has been prepared as if the acquisition of Connect had occurred on July 1, 2020:

	Unaudited Year ended June 30,
	2022		2021
Revenue	$	509,727	$	424,704
Net loss	$	(56,232)	$	(68,367)

The unaudited pro forma financial information presented above includes the business combination accounting and other effects from the acquisition including (1) amortization expense related to acquired intangibles and the related deferred tax; (2) the loss of interest income, net of taxation, as a result of funding a portion of the purchase price in cash; (3) an increase in interest expense resulting from the long-term borrowing obtained to fund a portion of the purchase price, (4) stock-based compensation charges related to restricted stock and restricted stock units granted to Connect employees, and (5) an adjustment to exclude all applicable transaction-related costs recognized in the Company’s consolidated statement of operations for the year ended June 30, 2022. The unaudited pro forma net income presented above does not include any cost savings or other synergies that may result from the acquisition.

The unaudited pro forma information as presented above is for information purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had occurred on these dates.

Since the closing of the acquisition, Connect has contributed revenue of $86.2 million and a net loss, including transaction-related interest expense and intangible assets amortization related to assets acquired, net of deferred taxes, of $3.2 million.

2021 Acquisitions

None.

2020 Acquisitions

None.