Pace acquisition of Aurora Networks, Inc.

Pace plc

23 October 2013

Pace plc announces the acquisition of Aurora Networks, Inc. for a headline consideration of $310m

Saltaire, UK, 23 October 2013: Today Pace plc ("Pace", the "Company"), a leading global developer of technologies and products for PayTV and broadband service providers, announces that it has entered into a conditional agreement with Aurora Networks, Inc. ("Aurora") to acquire Aurora for a headline consideration of $310m[1] in cash (the "Acquisition").

Aurora is a leading developer and manufacturer of advanced, next-generation Optical Transport and Access Network solutions for broadband networks that support the convergence of video, data and voice applications. For the year ended 31 March 2013, Aurora generated revenues of $217m[2] and EBITDA of $30m[3].

Strategic rationale

· Positions Pace to support operators' and consumers' constant demand for cost effective delivery of ever increasing bandwidth

· Highly profitable and growing business with blue chip customer base and market leading positions, serving over 200 customers in 50 countries, including all of the top 10 cable operators in the US

· Strong management team that has delivered 30 straight quarters of profitability

· Creates deeper and more embedded relationships with key customers

· Cross-sell opportunity across customer footprints

· Further widens Pace out beyond PayTV Customer Premise Equipment ("CPE")

Financial rationale

· Significantly accretive to earnings in 2014 and accelerates Pace towards improved profitability target of 9% Return on Sales in 2015

· Expected to generate annual run rate cost synergies across CoGs and Opex of $8m by the end of 2014

· The headline consideration represents a historic EV/EBITDA[4] multiple of 10.5x before synergies and 8.2x after expected annual run rate synergies, based on the results of Aurora for the 12 months to 31 March 2013

· Opportunity to apply robust Pace working capital controls to deliver significant working capital benefits

· Following completion of the Acquisition Pace expects to be conservatively levered and retain significant financial flexibility

Transaction overview

Pace will acquire Aurora for headline consideration of $310m on a cash-free and debt-free basis, plus a further $13m payable on closing in connection with tax benefits to be recovered over the three years post Acquisition. 15% of the headline consideration will be reserved for existing Hockey management and employees, with an element deferred over two years as a retention mechanism for key management, who will also be eligible to participate in a post-acquisition incentive plan.

The consideration for the Acquisition will be satisfied by the payment of cash on completion, funded through a new $310m 5-year amortising Term Loan. In addition, the Company is using the Acquisition as an opportunity to refinance its existing debt facilities with a new $150m 5-year Revolving Credit Facility. The new financing facilities are being provided by HSBC and RBS as Joint Underwriters, Bookrunners and Mandated Lead Arrangers with JPMorgan Chase Bank, N.A as Lead Arranger.

Management and employees

Following completion of the Acquisition, Aurora will continue to be run by its existing senior management team. Pace recognises the importance of the skills and experience of the existing management and employees of Aurora and believes that they will be an important factor for continuing the success of Aurora's business under Pace ownership. Aurora will operate as a Strategic Business Unit ("SBU") of Pace, leveraging Pace Group common services, whilst retaining the Aurora brand and managing a separate P&L to retain focus and accountability for business performance.

Pace will put in place appropriate retention and incentivisation arrangements for key management. The incentive arrangements will have a performance element based on the achievement of Aurora adjusted EBITA targets for 2014 and 2015, to be satisfied with a combination of cash and/or Pace deferred share awards under existing Pace employee share plans. The retention and incentive arrangements will span over a period of three years.

Other terms and conditions

The consideration for the Acquisition is subject to normal post-closing cash, debt and working capital adjustments.

Closing of the Acquisition is conditional upon the satisfaction of necessary regulatory and other conditions. The Acquisition constitutes a Class 1 transaction under the UK Listing Rules and is therefore conditional upon the approval of Pace shareholders.

A circular containing further details of the Acquisition will be sent to Pace shareholders in due course, together with a notice convening a General Meeting to seek shareholder approval for the Acquisition. Closing is expected to take place around the end of Q4 2013.

J.P. Morgan Cazenove is acting as sole financial adviser, sponsor and corporate broker to Pace.

Commenting on the Acquisition, Allan Leighton, Chairman of Pace, said:

"Since the announcement of the Pace Strategic Plan on 17 November 2011, we have consistently delivered on it, achieving almost all of the milestones and targets laid out at that time and there remains significant opportunity for development of the core business. The acquisition of Aurora represents an important evolution in this process and enhances our strategy to grow a broader platform across Hardware, Software and Services. Acquiring Aurora will allow Pace to expand beyond our core business and build deeper and more embedded relationships with our customers, which the Company believes will strengthen Pace's position as a market leading solutions provider for the PayTV and broadband industries."

Mike Pulli, CEO of Pace, said:

"Following a strong first half in 2013, good progress has been made in the period with continued momentum across the business. I am pleased to be able to announce the acquisition of Aurora. Aurora is a leading player in the pivotal area of Optical Transport and Access Network solutions, with a complementary overlap to Pace's blue-chip customer base and a strong and seasoned team of talented and innovative cable industry professionals.

With a leading presence in products that are increasingly important for cable operators as they fulfil consumers' constant demand for ever increasing bandwidth, this transaction further strengthens our relationships with our customers. The combined business will have strong financials and a broad market leading portfolio that will provide excellent opportunities for our customers, employees and shareholders alike."

Guy Sucharczuk, CEO of Aurora, said:

"Joining with Pace will create a market leading PayTV and broadband solution portfolio and a leading solutions provider to operators globally. The management team and I are excited to be joining and believe the combined organisation will go from strength to strength." 

Update on Pace Current Trading

Trading performance in the period 1 July to 22 October 2013 has shown good progress with continued momentum across the business. Revenue in the period is in line with expectations, gross margins have benefitted from improved revenue mix and procurement savings and operating costs are lower than in the same period in 2012.

Cash flow in the period has been strong following the completion of the Electronic Manufacturing Services ("EMS") rationalisation, working capital has been further reduced and Pace is in a net cash position (31 December 2011 net debt: $322m).

The Company continues to make good progress against its strategic plan announced in November 2011 and full year earnings guidance is reiterated:

· Revenues for 2013 expected to be broadly in-line with 2012;

· Operating margin for 2013 is expected to be greater than 7.5%; and

· Strong cash flow will continue, and excluding acquisitions, Pace expects to retain a net cash position through to the end of 2013.

The Company's Q3 IMS is scheduled to be released on Thursday 14th November.

Conference call

A live audio webcast and conference call to analysts and investors will be held at 12:00pm BST (07:00am EST) today

Webcast details:http://cache.merchantcantos.com/webcast/webcaster/4000/7464/16532/29734/Lobby/default.htm

Conference call dials for analysts / participants:

UK Toll Number: +44 (0) 20 3426 2845

UK Toll-Free Number: 0808 237 0038

US Toll Number: 1 347 329 1282

US Toll-Free Number: 1 866 928 6048

Audio Playback Numbers (available for 7 days):

UK Toll Number: +44 (0) 20 3426 2807

UK Toll-Free Number: 0808 237 0026

US Toll-Free Number: 1 866 535 8030

Audio Playback Pin 643064#

For further information please contact:

Pace

Roddy Murray +44 (0)1274 538 330

Chris Mather

J.P. Morgan Cazenove (Financial Adviser, Sponsor and Corporate Broker)

Hugo Baring +44 (0)207 742 4000

Finsbury (Financial PR)

Charles Chichester +44 (0)207 251 3801

About Pace

Pace (LSE: PIC) creates technologies, software, hardware and services for the broadcast and broadband industries. Pace solutions empower cable, telco and satellite operators to simply and cost-effectively innovate at the speed they want, in the way they want for their subscribers. Pace has built up its experience and expertise over 30 years and this is recognized by a customer base of over 160 operators around the globe.

Headquartered in the UK, Pace operates in markets across the world, and employs around 2000 people in locations that also include the USA, France, India and China.

About Aurora

Aurora is a the leading developer and manufacturer of advanced, next-generation Optical Transport and Access Network solutions for broadband networks that support the convergence of video, data and voice applications. Using its understanding of cable networks, the company delivers solutions such as its fibre deep architecture and digital return technology to help solve critical network bandwidth capacity constraints. Aurora's solutions offer best in class functionality, providing savings on power, space and operating expenses whilst leveraging existing network investments. For the year ended 31 March 2013, Aurora had revenues of $217m[5], EBITDA of $30m[6], profit before tax of $26m6 and gross assets of $165m6 as at 31 March 2013. Current shareholders of Aurora comprise TA Associates, Fuse Capital, Sprout, Castile and others including current and former employees of Aurora. Key management of Aurora includes Guy Sucharczuk (Chief Executive Officer & Founder), Charles Barker Ph.D. (Chief Scientist & Founder), Krzysztof Pradzynski (VP, R&D & Founder) and Scott Weinstein (VP, New Business Development).

Disclaimer

Certain statements in this announcement are forward-looking statements. By their nature, forward-looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. These risks, uncertainties or assumptions could adversely affect the outcome and financial effects of the plans and events described herein. Forward-looking statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. You should not place undue reliance on forward-looking statements. Except as required by law, the Company is under no obligation to update or keep current the forward-looking statements contained in this announcement or to correct any inaccuracies which may become apparent in such forward-looking statements.

No statement in this announcement is intended to be a profit forecast and no statement in this announcement should be interpreted to mean that earnings per Pace ordinary share for the current or future financial years would necessarily match or exceed the historical published earnings per Pace ordinary share. Prices and values of, and income from, shares may go down as well as up and an investor may not get back the amount invested. It should be noted that past performance is no guide to future performance. Persons needing advice should consult an independent financial adviser. Any statement to the effect that the Acquisition is expected to be earnings enhancing for the Company should not be interpreted to mean that earnings per Pace ordinary share in the first full year following the Acquisition, nor in any subsequent period, will necessarily match or be greater than those for any preceding financial year.

J.P. Morgan Limited (which conducts its UK investment banking business as J.P. Morgan Cazenove), which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively for Pace and for no one else in connection with the matters described in this document and is not, and will not be, responsible to anyone other than Pace for providing the protections afforded to clients of J.P. Morgan Cazenove, or for providing advice in connection with the matters described in this document.