DWS : enters into binding agreement to acquire SMS Management & Technology via a Scheme of Arrangement

ACN 085 656 088

27 February 2017

DWS enters into binding agreement to acquire SMS Management & Technology via a Scheme of Arrangement Key highlights

• DWS has entered into a Scheme Implementation Agreement to acquire SMS Management & Technology

• $1.00 cash and 0.39 DWS shares for every SMS share, representing an implied value of

  $1.661 per share. SMS shareholders will also receive an interim dividend of $0.015 per share in addition to Scheme Consideration

• Attractive value for SMS shareholders with the ability to participate in the upside of the combined businesses. SMS Board unanimously recommends SMS shareholders vote in favour of the Transaction, in the absence of a superior proposal emerging prior to the scheme meeting and subject to an Independent Expert concluding the Transaction is in the best interests of SMS shareholders

• The Transaction is expected to be transformational for DWS and SMS with significant benefits anticipated, including from the adoption of "best of breed" delivery to market and the realisation of synergies and operating efficiencies

• The Transaction will be materially EPS accretive to DWS in FY18

  Transaction overview

  DWS Limited (DWS) today announced that it has entered into an agreement to acquire all of the share capital in SMS Management & Technology (SMS) via a Scheme of Arrangement (Transaction). Under the Transaction, SMS shareholders will receive $1.00 cash and 0.39 DWS shares for every SMS share, representing an implied value of $1.66 (Scheme Consideration). In addition to the Scheme Consideration, SMS has declared a fully franked interim dividend of $0.015 per SMS share, without reduction to the Scheme Consideration and representing additional value to SMS shareholders.

  1 Implied offer value is based on DWS's 5 day volume weighted average price (VWAP) of $1.70 as at 24 February 2017

  ACN 085 656 088

  SMS has retained the discretion to declare a fully franked special dividend of up to 10.2 cents per SMS share, to enable franking benefits of up to 4.4 cents per share to be distributed to SMS shareholders. The cash component of the Scheme Consideration will be reduced by the amount of any such special dividend. SMS intends to apply to the Australian Taxation Office for a ruling in respect of any special dividend.

  The implied value of the Scheme Consideration represents:

  • a premium of 30% to SMS‟s undisturbed closing share price on 22 February 20172;

  • a premium of 26% to SMS‟s undisturbed one month volume weighted average price (VWAP) calculated at 22 February 20173;

  • an implied LTM EV/EBITDA multiple of 11.9x4

    The Transaction offers SMS shareholders a mixture of cash and DWS shares, enabling SMS shareholders to retain exposure to the SMS business and benefit from the upside potential available through the combination of DWS and SMS, and with it, the capability and experience of the DWS management team.

    The SMS Board unanimously recommends that SMS shareholders vote in favour of the Transaction, in the absence of a superior proposal emerging prior to the scheme meeting and subject to an Independent Expert concluding the Scheme is in the best interests of SMS shareholders.

    Transaction rationale

    The combination of the two IT services groups will create a leading Australian IT services provider with the size and capability to fully service the market. As such, the combination will provide consolidation in the Australian IT Services market, a goal that has been sought by industry participants over many years.

    SMS is a leading Australian-based IT services provider, with a 30-year track record of quality service. SMS provides a range of IT services, with an established position in IT consulting and development & implementation businesses, in addition to offering managed services

    2 Implied offer value is based on DWS's 5 day volume weighted average price (VWAP) of $1.70 as at 24 February 2017

    3 Implied offer value is based on DWS's 5 day volume weighted average price (VWAP) of $1.70 as at 24

    February 2017; one month volume weighted average price (VWAP) of $1.32

    4 Implied offer value is based on DWS's 5 day volume weighted average price (VWAP) of $1.70 as at 24 February 2017, SMS net debt of $10.3 million as at 31 December 2016, total issued shares of 68.5 million and

    SMS EBITDA prior to significant items of $5.4 million in 2H FY16 and $5.0 million in 1H FY17.

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    and labour hire services. SMS has longstanding relationships with key clients in the Enterprise market, and with State & Federal Governments. The acquisition of SMS will strengthen and deepen DWS‟ core service offering across IT consulting, whilst also widening the scope of offerings to include managed services and labour hire services. Acquiring SMS will enable DWS to offer services across the full spectrum of the IT services market and give rise to numerous cross-selling opportunities. In addition, the combination of the two IT services groups will allow SMS clients to benefit from the additional IT service offerings provided by the DWS group including the market leading digital and customer innovation services offered by Symplicit and the business efficiency services provided by the acquisition of Phoenix.

    In making the announcement, DWS CEO Danny Wallis said:

    "The acquisition of SMS is transformational for the DWS and SMS businesses and the Australian IT Services market as a whole. We are intent on expanding the breadth and depth of our services so we can provide solutions designed to meet our clients‟ needs. The acquisition supports this commitment, and we anticipate it will generate real value for our employees, clients and shareholders. The DWS team is delighted to welcome SMS‟ talented professionals to DWS in due course, as we continue growing and expanding our portfolio of innovative business solutions across the IT services sector. The combination of the two groups provides IT consultants with the opportunity to be part of an Australian based champion as well as increasing the range of Government and blue chip clients that they can work with and support."

    DWS management has identified cost synergies of at least $5 million per annum, with additional benefits available from efficiency improvements and cross selling opportunities.

    The Transaction will be materially EPS accretive to DWS in FY18.

    Transaction conditions

    The Transaction is subject to a number of conditions precedent, including:

  • SMS shareholder approval of the scheme of arrangement;

  • An independent expert issuing its report which concludes the Transaction is in the best interests of SMS shareholders;

  • Court approval of the scheme of arrangement;

  • No SMS or DWS Prescribed Occurrences;

  • No SMS or DWS Material Adverse Change; and

  • Relevant ASX and ASIC approvals.

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The Scheme Implementation Agreement contains exclusivity provisions including "no shop‟,

"no talk‟ and no "due diligence‟ restrictions in relation to third parties subject to a customary fiduciary carve out, and a matching right in favour of DWS.

Further details on the Conditions Precedent to the Transaction are set out in the Scheme Implementation Agreement attached to this announcement.

Funding

The cash component of the Transaction will be funded through new debt facilities.

DWS has a credit-approved term-sheet to fully fund the cash component of the Transaction and refinance all SMS debt.

Indicative Transaction Timetable

It is expected that SMS will hold a shareholders meeting to approve the transaction in June 2017, with the Scheme expected to be implemented shortly thereafter. An indicative timetable in relation to key dates of the Transaction is set out below. Implementation of the Transaction is expected by June 2017, however this remains subject to change.

Event	Indicative Timing*
Announcement and execution of Scheme Implementation Agreement	27 February 2017
First Court Hearing	Late April 2017
Scheme Booklet sent to SMS shareholders	Early May 2017
Scheme Meeting	Early June 2017
Second Court Hearing	Mid June 2017
Implementation Date	Late June 2017

*The above timings are indicative only and remain subject to change.

For more information, please contact:

Investors / Media

Stuart Whipp

CFO / Company Secretary T: 03 9650 9777

E: [e-mail] W: www.dws.com.au