Family Zone Cyber Safety : to acquire global parent control leader Qustodio

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FAMILY ZONE TO ACQUIRE QUSTODIO

Family Zone to acquire global parental control leader

Qustodio and launch a capital raising

Highlights

• ● Family Zone to acquire global leader in parental controls Qustodio for US$52 million with 52% payable upfront in a combination of cash, vendor finance and Family Zone shares and the remaining 48% payable in Family Zone shares subject to the satisfaction of performance milestones.

• ● The merger of the Qustodio business into the Family Zone group will significantly expand the Company's capability and global footprint.

• ● The transaction is subject to Spanish Foreign Direct Investment approval, completion of a capital raising by Family Zone and Family Zone shareholder approval of the issue of securities to the vendors.

"The bringing together of Qustodio and Family Zone will be seen in time as a turning point in online safety globally. We are honoured and excited to be welcoming Qustodio team into our family". Tim Levy, Managing Director Family Zone

"Qustodio and Family Zone share the view of a better world where schools, parents and children can work together to create safe and enriching online experiences. This shared vision has led us to unite forces and bring game changing unified approaches in online safety to market. Our combination will represent the creation of a truly global leader in online safety with unmatched scale and capabilities." Eduardo Cruz, Co-founder & CEO

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About Qustodio

In 2010, Eduardo Cruz, Josh Gabel and Josep Gasper were working together in cyber security. They saw the new iPhone 4 and knew that a wave of digital devices would soon enter families' homes - bringing both huge opportunities and huge risks. At the same time, they'd been inspired by the way new analytics tools were helping businesses capture data visually. It was then that they had the idea to use intuitive visual data to help families keep their kids safe.

They built their first prototype in 2011 and officially founded Qustodio in 2012 (naming it in reference to the Latin term for guardian, 'custodia'). The initial product helped parents see what their kids were doing on their Windows computers in an easy-to-understand way. In the years since then, Qustodio has added multiple features and expanded to cover many operating systems. It's now a truly comprehensive parental control solution that works on (almost) all devices.

Based in Barcelona Spain, today Qustodio is a global leader in parental controls with customers in more than 100 countries and operating in 9 languages.

Qustodio is founder led and managed with a shareholding of Founders (59%); Staff (3%); Venture Capital Investors (35%); and individual Angel investors (3%).

Qustodio has grown consistently since its founding. It is well run and profitable providing services to in excess of 270,000 paid parent control accounts.

Qustodio generates circa AU$16 million of Annual Recurring Revenue with 95% from its consumer channels and the remainder through its launched K-12 (education) offerings.

Qustodio has a sophisticated marketing capability and a channel diversity with direct, affiliate and partner channels. Qustodio's channel partners are some of the world's leading telco operators with Qustodio's telco partners reselling Qustodio in Spain, France, Singapore, Mexico, Japan, Brazil & Chile.

Rationale

The acquisition of Qustodio meets the Company's strategic intent of attracting the best people and the best technology.

The acquisition will offer Family Zone expertise, capability, scale, new markets, operational efficiencies and brings forward the Company's inflection point.

• ● Cross-sell into K-12: Qustodio has a highly resolved product, well suited to offer through Family Zone's 24,000 school footprint.

• ● Global footprint & language skills: Qustodio operates globally with a strong presence in key countries. These are hubs for K-12 expansion.

• ● Talent and talent pools: Qustodio is an outstanding outfit and Spain has a strong and cost effective talent pool in an attractive timezone.

• ● Dedicated consumer capability: The merger allows pooling of consumer capability and dedication of resources to direct and B2B2C channels.

• ● Expanded features: The merger will create an opportunity to bring together our consumer feature sets.

• ● Operating efficiencies: The merger will allow realisation of efficiencies through scale and duplication of effort.

Together Family Zone and Qustodio to become a dominant global online safety operator with (on a proforma basis):

• ● AU$70 million of annual recurring revenue and growing in excess of 30% pa

• ● 85% gross margin with stable costs and opportunities for efficiencies

• ● 23,800 schools

• ● 11 million students

• ● 340,000 parent accounts

• ● 9 languages

• ● 10 telco resellers

• ● 510 FTEs

The transaction

Family Zone has entered into an agreement to acquire 100% of the shares in Qustodio LLC (the US holding company of Qustodio) and its Spanish subsidiaries through its wholly-owned subsidiary, Family Zone, Inc.. The transaction is conditional upon completion of a capital raising launched today by Family Zone to raise up to AU$42 million ("Capital Raising"), Spanish Foreign Direct Investment approval and Family Zone shareholder approval of the issue of all securities to the vendors. Key terms include:

• ● An overall acquisition price of US$52 million on a cash and debt free basis (and subject to completion financial adjustments) with 52% paid at completion of the acquisition and 48% to be issued in Family Zone ordinary shares ("Shares") subject to subscription revenue and/or EBITDA targets being satisfied ("Deferred Consideration Rights").

• ● Assuming all targets are achieved, the EV/ARR multiple is ~4.5x. The value of Deferred Consideration Rights is reduced on a dollar for dollar basis to the extent the subscription revenue and/or EBITDA targets are not achieved.

• ● Consideration payable on completion of the acquisition consists of:

  • ○ US$9.9m in cash payable to staff shareholders of Qustodio (excluding its founding shareholders ("Founders")), angel investor shareholders of Qustodio ("Angel Investors") and venture capital investor shareholders of Qustodio ("VC Investors");

  • ○ US$7.7m in Convertible Notes to be issued to the VC Investors. The Convertible Notes have a term of 24 months, are interest only and convert at AU$60c. The Convertible Notes are repayable in cash if not converted and are convertible into Shares (by the note holders) and redeemable for cash (by Family Zone), at any time;

  • ○ US$5.7m of Shares issued at A$0.426 to the Angel Investors and Founders which are subject to orderly market realisation terms.

• ● US$3.6m to be retained from the VC Investors and the Founders as a provision for warranty and indemnity claims. These hold-backs are to be released 50% at 8 months and 50% at 16 months, after completion of the acquisition.

• ● Up to US$25.1m in Deferred Consideration Rights to the Founders subject to Qustodio achieving over 2 years:

  • ○ 25% growth in subscription revenue; and

  • ○ 9.5% EBITDA margins each year; or

  • ○ 40,000 referred parent accounts from Family Zone schools.

• ● The value of the Founder's Deferred Consideration Rights will be adjusted for any warranty and indemnity claims (up to 15% of total Deferred Consideration Rights), within 18 months of completion of the acquisition. Subject to the satisfaction of the subscription revenue and/or EBITDA targets, the Deferred Consideration Rights convert into Shares at the 30 day VWAP at the time, subject to a cap of AU$0.60 and a floor of A$0.426.

• ● The Shares, Convertible Notes and Deferred Consideration Rights to be issued to the vendors are all subject to shareholder approval to be sought at a general meeting of Family Zone shareholders in June 2022.

• ● The vendors of Qustodio have provided warranties and indemnities customary for a transaction of this nature.

• ● A break fee of US$500,000 is payable by Family Zone to the vendors if the acquisition agreement is terminated due to breach by Family Zone or if Family Zone fails to complete the Capital Raising.

Further details on Qustodio, the transaction and the rationale are provided in the enclosed investor presentation and will be detailed in an upcoming Notice of Meeting to be sent to shareholders and lodged with the ASX.

Azure Capital Pty Ltd is acting as corporate adviser and Thomson Geer is acting as legal adviser to Family Zone in relation to the transaction.

Invitation to join Company Webinar

The Company is pleased to invite shareholders to listen to Managing Director Tim Levy update the market on this transaction at the NWR Virtual Investor Conference on Tuesday 3 May, 2022 12:20 PM AEST.

Investors and interested parties can register for the presentation via the following link:

https://us02web.zoom.us/webinar/register/WN_rNVBTvTIQFGKJIgza7lGwA

After registering, you will receive a confirmation email containing a calendar invitation and information about joining the webinar.

This announcement was made on 2 May 2022 and was authorised by the Managing Director of Family Zone Cyber Safety Limited.

About Family Zone

Family Zone, supporting and protecting every child's digital journey, is an ASX-listed technology company and an emerging leader in the fast growing global cyber safety industry. Family Zone's unique innovation is its patented cyber safety ecosystem, a platform enabling a world-first collaboration between schools, parents and cyber safety educators. Family Zone's unique approach is delivering rapid growth in the education sector, as well as through direct sales and scalable reseller arrangements with telco providers.

To learn more about the Family Zone platform and the Company please visitwww.familyzone.com.

Contacts

Tim Levy	Tim Dohrmann	Family Zone Cyber Safety Ltd
Managing Director	Investor Relations	945 Wellington Street
[e-mail]	[e-mail]	West Perth, WA 6005
[phone]	[phone]
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