Acquisition and Placing

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM ANY JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF LOCAL APPLICABLE SECURITIES LAWS OR REGULATIONS.

For immediate release 8 November 2013

SQS Software Quality Systems AG("SQS" or the "Company")

Placing of 2,618,507 new Ordinary Shares at 435 pence per share to raise a total of approximately £11.4 million

Acquisition of a majority of the issued share capital of Thinksoft Global Services Ltd ("Thinksoft") for up to €17.5 million

Summary

SQS Software Quality Systems AG (AIM:SQS.L), the world's largest supplier of independent software testing, is pleased to announce that it has conditionally raised approximately £11.4 million (before expenses) by way of a placing (the "Placing") by Canaccord Genuity Limited ("Canaccord Genuity") and Westhouse Securities Limited ("Westhouse"), (Canaccord Genuity and Westhouse, together the "Banks"), with institutional investors of 2,618,507 new ordinary shares of €1 each ("Ordinary Shares"), (the "Placing Shares") at a price of 435 pence per share (the "Placing Price"). The Placing saw strong demand from institutional investors and was significantly oversubscribed.

The Company intends to use the net proceeds of the Placing to part finance the acquisition of up to 52.9% of the fully diluted* share capital of Thinksoft, at a price of INR 260 per Thinksoft share (the "Offer Price") amounting to a total cash consideration of up to €17.5 million (the "Offer" or the "Acquisition"). The balance of the consideration will be financed through the Company's existing resources. The Offer Price represents a premium of approximately 68% to the closing share price of a Thinksoft share on 6 November 2013.

Thinksoft is one of the largest independent software testing companies focused solely on the Banking, Financial Services and Insurance sector ("BFSI") and is listed on the Bombay Stock Exchange (the "BSE") and National Stock Exchange (the "NSE") of India.

The Company intends to acquire 24.5% of Thinksoft, on a fully diluted basis, from the founding shareholders (the "Founders") pursuant to the terms of an acquisition agreement (the "Acquisition Agreement") and a further 28.3%, on a fully diluted basis, through a tender offer to public shareholders of Thinksoft on the BSE and the NSE (the "Tender Offer").

In the event that the Company is unable to acquire a majority shareholding in Thinksoft shares through the Tender Offer, the Founders have committed to sell up to a maximum of their remaining shareholdings (being up to 2,803,871 shares), which would leave SQS with a resulting shareholding of 50.6% in Thinksoft on a fully diluted basis. Thinksoft will remain quoted on the BSE and NSE following completion of the Offer and the Acquisition is expected to be immediately EPS enhancing for SQS.

The Placing is not conditional upon shareholder approval. However, in accordance with German law, the increase in the Company's share capital required to allot the Placing Shares is subject to the prior approval of the local competent court in Germany which is expected to be received on or around 28 November 2013. Admission of the Placing Shares to trading on the AIM Market of London Stock Exchange plc ("Admission") is expected to become effective the business day following such approval being received.

The total issued share capital of the Company with voting rights following the Placing will be 30,562,679 Ordinary Shares. The Company holds no Ordinary Shares in treasury. Therefore, the total number of voting rights in SQS following completion of the Placing will be 30,562,679. The above figure of 30,562,679 may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, SQS under the Financial Conduct Authority's Disclosure and Transparency Rules.

* Percentages of Thinksoft are shown on a fully diluted basis, assuming the total issued share capital of Thinksoft plus the granted but unexercised share options

Commenting on the Placing and the Acquisition, Diederik Vos, Chief Executive Officer of SQS said:

"We are delighted to announce the Acquisition and our successful Placing and would like to thank shareholders and new investors for supporting us in financing the Acquisition.

"Thinksoft will considerably deepen our expertise in the fast growing BFSI sector, which is of key strategic focus to SQS. In addition, the Acquisition will bring with it new client relationships in a number of our core geographies, including the USA, enabling us to further accelerate our rapid penetration of this substantial market. The Acquisition will also expand our international reach, giving us a presence in geographies including Australia, Singapore, Belgium and the Gulf Region, as well as augmenting our existing presence in India.

"As a result of the Acquisition, SQS will be an organisation of increased size and scale, particularly in terms of our Indian offshore headcount and BFSI expertise, giving us the capacity and resources to bid on ever larger Managed Services contracts."

Commenting on the Acquisition, Asvini Kumar, Chairman and Managing Director of Thinksoft said:

"We are excited about joining forces with SQS. Thinksoft's and SQS' pure play focus on independent software testing and quality assurance services make the two organizations a natural fit. Furthermore, our combined customer bases and employees will benefit significantly from the increased global scale and global delivery capabilities that this combination will be able to offer, enabling a further acceleration in the growth rate of both SQS and Thinksoft."

Placing Statistics:

Notes:

 (1) Assuming Admission of all of the Placing Shares and that no other Ordinary Shares are issued between the date of this announcement and Admission.

These highlights should be read in conjunction with the full text of this announcement.

Enquiries:

SQS Software Quality Systems AG +49 (2203) 91 54 0

Diederik Vos, Chief Executive Officer

René Gawron, Chief Financial Officer

Canaccord Genuity Limited (Nomad and Joint Broker) + 44 (0) 20 7523 8000

Corporate Finance: Simon Bridges / Peter Stewart / Cameron Duncan

ECM: Tim Redfern / Kit Stephenson

Westhouse Securities (Joint Broker) +44 (0) 20 7601 6100

Corporate Finance: Robert Finlay / Antonio Bossi

Corporate Broking: Henry Wilcocks / Richard Johnson

Walbrook PR Limited +44 (0) 20 7933 8780

Bob Huxford / Helen Westaway

Details of the transaction

1. Introduction, reasons for the Placing and use of proceeds

SQS Software Quality Systems AG (AIM:SQS.L), the world's largest supplier of independent software testing, is pleased to announce that it has conditionally raised approximately £11.4 million (before expenses) by way of a placing (the "Placing") by Canaccord Genuity Limited ("Canaccord Genuity") and Westhouse Securities Limited ("Westhouse"), (Canaccord Genuity and Westhouse, together the "Banks"), with institutional investors of 2,618,507 new ordinary shares of €1 each ("Ordinary Shares"), (the "Placing Shares") at a price of 435 pence per share (the "Placing Price"). The Placing saw strong demand from institutional investors and was significantly oversubscribed.

The Company intends to use the net proceeds of the Placing to part finance the acquisition of up to 52.9% of the fully diluted* share capital of Thinksoft, at a price of INR 260 per Thinksoft share (the "Offer Price") amounting to a total cash consideration of up to €17.5 million (the "Offer" or the "Acquisition"). The balance of the consideration will be financed through the Company's existing resources. The Offer Price represents a premium of approximately 68% to the closing share price of a Thinksoft share on 6 November 2013.

Thinksoft is one of the largest independent software testing companies focused solely on the Banking, Financial Services and Insurance sector ("BFSI") and is listed on the Bombay Stock Exchange (the "BSE") and National Stock Exchange (the "NSE") of India.

The Company intends to acquire 24.5% of Thinksoft, on a fully diluted basis, from the founding shareholders (the "Founders") pursuant to the terms of an acquisition agreement (the "Acquisition Agreement") and a further 28.3%, on a fully diluted basis, through a tender offer to public shareholders of Thinksoft on the BSE and the NSE (the "Tender Offer").

In the event that the Company is unable to acquire a majority shareholding in Thinksoft shares through the Tender Offer, the Founders have committed to sell up to a maximum of their remaining shareholdings (being up to 2,803,871 shares), which would leave SQS with a resulting shareholding of 50.6% in Thinksoft on a fully diluted basis. Thinksoft will remain quoted on the BSE and NSE following completion of the Offer and the Acquisition is expected to be immediately EPS enhancing for SQS.

The Placing is not conditional upon shareholder approval. However, in accordance with German law, the increase in the Company's share capital required to allot the Placing Shares is subject to the prior approval of the local competent court in Germany which is expected to be received on or around 28 November 2013. Admission of the Placing Shares to trading on the AIM Market of London Stock Exchange plc ("Admission") is expected to become effective the business day following such approval being received.

The Placing Price represents no discount to the closing middle market price of 435 pence per existing Ordinary Share on 6 November 2013 and a premium of approximately 0.5 per cent. to the average closing middle market price of approximately 433 pence per existing Ordinary Share for the preceding 30 calendar days up to and including 6 November 2013.

* Percentages of Thinksoft are shown on a fully diluted basis, assuming the total issued share capital of Thinksoft plus the granted but unexercised share options

2. Background on Thinksoft

Overview

Thinksoft is one of the largest independent software testing services providers dedicated solely to the Banking, Financial Services and Insurance sector and is headquartered in Chennai, India and listed on the BSE and NSE with a market capitalisation of c. INR 1,571m (c. £15.9m) as at close of business on 6 November 2013.

Thinksoft provides end-to-end software testing and quality assurance capabilities with domain expertise and has a 20-year track record of having delivered software validation and verification services for leading BFSI companies in Asia-Pacific, the USA, Europe, Middle East and India. Thinksoft's business model uses cost effective India based testing teams together with customer facing sales offices. Thinksoft has three testing centres, two in Chennai, one in Mumbai, and further sales offices in London, New York, Dubai, Bangalore, Mumbai and Singapore.

In the financial year ended 31 March 2013, the top 5 customers of Thinksoft accounted for 53% of revenue, and the top 10 customers accounted for 70% of revenue.

As at 31 March 2013, Thinksoft had a total of 782 employees, split 16% onshore and 84% offshore (India), including 713 delivery consultants, 14 sales and marketing personnel and 55 finance, human resources, admin and other personnel.

Key Financials

Revenue by practice

* €1.0 = INR 84.6 as at 6 November 2013

Key geographies

Shareholding Structure

* Percentages of Thinksoft are shown on a fully diluted basis, assuming the total issued share capital of Thinksoft plus the granted but unexercised share options

3. Strategic rationale for the Acquisition

Overview

The fundamental rationale underpinning the Acquisition is the Company's objective of expansion into distinct sectors and new geographies within software testing services and specifically of increasing the Indian offshore headcount. Thinksoft's deep expertise in the BFSI sector is highly complementary to SQS. The Acquisition also fits within the Company's Managed Services strategy.

SQS' offer for Thinksoft is in conformity with SEBI take-over guidelines and customary public company take-over practices in India. Upon closing of the transaction, SQS will acquire control in Thinksoft from the Founders, whilst at the same time maintaining Thinksoft's listings on the BSE and NSE in India.

Customers & Sales

From an operational perspective, the Acquisition will approximately double SQS' Indian delivery capability and add significant offshore banking experience and expertise. The Acquisition is expected to add new customer relationships within geographies where the Company has an existing presence, such as UK, India, Austria and the USA. Specifically within the USA, the Acquisition is expected to add new customers in the BFSI sector, which itself is a new sector for the Company's USA operations. In addition, the Acquisition is expected to expand the Company's presence into the following new geographies:

· Singapore: key expansion area for SQS with opportunities to leverage existing SQS banking relationships in Europe

· Belgium: active expansion area for SQS-Benelux

· Gulf Region: close to SQS' existing Egyptian operation; SQS has capability to provide Arabic-speaking resources on Islamic banking projects

· Australia: expansion into Asia-Pacific region

4. Terms of the Placing

The Company has entered into an underwriting agreement (the "Underwriting Agreement") with the Banks, pursuant to which the Banks have, subject to the terms and conditions set out therein, agreed to subscribe as principal for the Placing Shares at the Placing Price and thereafter to resell all of the Placing Shares to placees, (the "Placing"). As a result of this arrangement, Canaccord and Westhouse will hold interests of 5.14% and 3.43% in the enlarged share capital of SQS, respectively, after the Placing Shares have been issued but prior to Admission.

The Placing Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with each other and the existing Ordinary Shares in issue.

The Placing Shares will be issued and resold free of any encumbrance, lien or other security interest.

The Placing is conditional upon the Underwriting Agreement becoming unconditional but is not conditional on completion of the Acquisition.

In order to provide for certain funds to finance the Acquisition, the Underwriting Agreement is not capable of being terminated prior to Admission. However, the obligations of the Banks under the Underwriting Agreement are conditional, inter alia, on:

1. the Company having applied to the local competent German court for approval of the share capital increase required to implement the Placing and such share capital increase being registered and becoming effective;

2. Admission occurring by no later than 8.00 a.m. on 31 December 2013 (although the Company expects Admission to occur by no later than 8.00 a.m. on 29 November 2013); and

3. the Acquisition Agreement not having been terminated in accordance with its terms.

The Underwriting Agreement contains customary warranties from the Company in favour of the Banks in relation to, inter alia, the accuracy of the information in this announcement and other matters relating to the Group and its business. In addition, the Company has agreed to indemnify the Banks in relation to certain liabilities they may incur in respect of the Placing.

Given that there are a number of conditions to the Acquisition Agreement which will not have been met before the completion of the Placing, and whilst the Company regards this eventuality as being of very remote likelihood, it is possible that the Placing will complete but not the acquisition of Thinksoft.

It is also possible that, in the unlikely event that the local competent German court does not approve the share capital increase, the Placing will lapse but the Company will be required to proceed with the Acquisition in any event.

5. Terms of the Acquisition

Pursuant to the terms of the Acquisition Agreement, SQS is proposing to acquire up to 5,696,087 shares in Thinksoft, of which 2,644,612 shares will be acquired from the Founders as part of an initial acquisition, with the remainder to be acquired conditional on the outcome of a mandatory Tender Offer to public shareholders. On completion of the initial acquisition, the Company will appoint certain of its representatives as directors to the board of Thinksoft. In terms of the Acquisition Agreement, in the event that the sum of the initial acquisition and the shares acquired pursuant to the Tender Offer is less than 5,638,908 shares, the Founders have committed to sell to the Company the additional shares representing the shortfall, subject to a maximum of their remaining shareholding (being up to 2,803,871 shares).

The Founders of Thinksoft have provided certain stand-still undertakings in relation to the business and affairs of Thinksoft and its subsidiaries until completion of the initial acquisition. Under the terms of the sale and purchase agreement, there are also certain representations and warranties from the Founders in relation to their authority to commit to the Acquisition, to their ownership of shares in Thinksoft and to the incorporation, share capital, business, operations and legal compliance of Thinksoft and its subsidiaries. SQS has similarly provided certain representations and warranties, including in relation to its authority and financial capability to commit to the Acquisition. In addition, the terms of the Acquisition Agreement include certain non-competition and non-solicitation obligations from the Founders and SQS.

The Acquisition is subject to certain closing conditions, including the receipt of applicable regulatory clearances. Following completion of the acquisition, SQS will formally replace the Founders as "Promoters" of Thinksoft (as the term is understood under Indian securities regulations).

Expected Timetable of Principal Events

Important Notice

Neither the content of the Company's website nor any website accessible by hyperlinks to the Company's website is incorporated in, or forms part of, this announcement. The distribution of this announcement and any other documentation associated with the Placing into jurisdictions other than the United Kingdom may be restricted by law. Persons into whose possession these documents come should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws or regulations of any such jurisdiction. In particular, such documents should not be distributed, forwarded to or transmitted, directly or indirectly, in whole or in part, in, into or from the United States, Australia, Canada, Japan or the Republic of South Africa or any other jurisdiction where to do so may constitute a violation of the securities laws or regulations of any such jurisdiction (each a "Restricted Jurisdiction").

The Placing Shares have not been and will not be registered under the US Securities Act 1933 (as amended) (the "US Securities Act") or with any securities regulatory authority of any state or other jurisdiction of the United States and, accordingly, may not be offered, sold, resold, taken up, transferred, delivered or distributed, directly or indirectly, within the United States except in reliance on an exemption from the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States.

There will be no public offer of the Placing Shares in the United States. The Placing Shares are being offered and sold outside the US in reliance on Regulation S under the US Securities Act. The Placing Shares have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission in the US or any other US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Placing Shares or the accuracy or adequacy of this announcement. Any representation to the contrary is a criminal offence in the US.

The Placing Shares have not been and will not be registered under the relevant laws of any state, province or territory of any Restricted Jurisdiction and may not be offered, sold, resold, taken up, transferred, delivered or distributed, directly or indirectly, within any Restricted Jurisdiction except pursuant to an applicable exemption from registration requirements. There will be no public offer of Placing Shares in Australia, Canada, Japan, or the Republic of South Africa.

This announcement is for information purposes only and does not constitute or form part of any offer to issue or sell, or the solicitation of an offer to acquire, purchase or subscribe for, any securities in any jurisdiction and should not be relied upon in connection with any decision to acquire any of the Placing Shares. In particular, this announcement does not constitute or form part of any offer to issue or sell, or the solicitation of an offer to acquire, purchase or subscribe for, any securities in the United States.

This announcement has been issued by, and is the sole responsibility of, the Company. No person has been authorised to give any information or to make any representations other than those contained in this announcement and, if given or made, such information or representations must not be relied on as having been authorised by the Company or the Banks. Subject to the AIM Rules for Companies, the issue of this announcement shall not, in any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this announcement or that the information contained in it is correct at any subsequent date.

Canaccord Genuity, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting for the Company and no one else in connection with the Placing and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Placing and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Placing or any matters referred to in this announcement.

Westhouse, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting for the Company and no one else in connection with the Placing and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Placing and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Placing or any matters referred to in this announcement.

Apart from the responsibilities and liabilities, if any, which may be imposed on the Banks by the Financial Services and Markets Act 2000, neither of the Banks accepts any responsibility whatsoever for the contents of this announcement, and makes no representation or warranty, express or implied, for the contents of this announcement, including its accuracy, completeness or verification, or for any other statement made or purported to be made by them, or on their behalf, in connection with the Company or the Placing Shares or the Placing, and nothing in this announcement is or shall be relied upon as, a promise or representation in this respect whether as to the past or future. Each Bank accordingly disclaims to the fullest extent permitted by law all and any liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this announcement or any such statement.

No statement in this announcement is intended to be a profit forecast or estimate and no statement in this announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company.

This announcement may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will", or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include matters that are not historical facts. They appear in a number of places throughout this announcement and include statements regarding the Directors' current intentions, beliefs or expectations concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and the Company's markets. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual results and developments could differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements may and often do differ materially from actual results. Any forward-looking statements in this announcement are based on certain factors and assumptions, including the Directors' current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company's operations, results of operations, growth strategy and liquidity. Whilst the Directors consider these assumptions to be reasonable based upon information currently available, they may prove to be incorrect. Save as required by law or by the AIM Rules for Companies, the Company undertakes no obligation to release publicly the results of any revisions to any forward-looking statements in this announcement that may occur due to any change in the Directors' expectations or to reflect events or circumstances after the date of this announcement.