EUR14 million Offer for Leap Gaming

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ('MAR').

Seed Innovations Ltd / AIM: SEED / Sector: Closed End Investments

7 December 2022

SEED Innovations Ltd ("SEED" or, the "Company")

€14 million Offer for Leap Gaming

Divestment would secure approximately €5.9m Cash to the Company over 2 year period

SEED Innovations Ltd, the AIM quoted company focusing on making investments in fast growing and industry leading businesses with a focus on the medical cannabis, health and wellness space, is pleased to announce that the unitholders of portfolio company Fralis LLC (trading as Leap Gaming, 'Leap'), have entered into a conditional Sale & Purchase Agreement ('SPA') for the sale of the remainder of Leap to existing unitholder IMG Arena US, LLC ('IMG') based upon an enterprise value of €14 million (the 'Leap Transaction').  IMG is an existing investor in, and the second largest owner of, Leap.  Following the transaction, Leap will be wholly owned by IMG.

The price will be adjusted for both working capital and repayment of debt (including the term loan of €250,000 advanced by SEED (see announcement of 8 June 2022) (the 'Term Loan').  Completion is subject to receipt by Leap of regulatory approvals required from various Gambling Commissions (including the United Kingdom and Malta).  This regulatory review process will take some months and the parties are currently estimating it may be late Q1 or early Q2 2023 before the transaction can be confirmed ('Completion'). 

SEED currently estimates that the consideration at completion will be based on an equity value for Leap of approximately €12.9 million. Of this SEED expects to receive approximately €5.6 million, payable €2.8 million upon Completion and up to €2.8 million, subject to any claims under customary warranties & indemnities, on the 12-month anniversary of Completion. 

In addition, SEED will also receive repayment of its €250,000 Term Loan plus accrued interest upon Completion. 

The Company intends to use the proceeds received for making further investments in accordance with its investing policy.

Ed McDermott, CEO of SEED, commented:

"After several years of a strategic partnership between Leap and IMG this is the natural next step in Leap's development. The opportunity to divest our interest in Leap, which is increasingly anomalous with the rest of our portfolio, for cash, is prudent given the continuing challenging market conditions which make a successful public market listing for Leap in the short to medium term unlikely.  It is not the exit we envisaged but provides liquidity and enables SEED to continue to refocus our investment portfolio whilst at the same time setting Leap up for further success in the future.

"The divestment has come at a good time for SEED, providing it with the funds to invest in disruptive technologies, particularly in the life sciences, biotech, health and wellness industries (including medical cannabis) where most of our current investments sit and where the expertise of our board lies. We are optimistic that this investment focus has the potential to enhance long term value creation."

Further Details

The unitholders of Leap have entered into an SPA for the sale of the remaining units of Leap to existing unitholder IMG based on an agreed enterprise value for Leap of €14 million (which price will be subject to adjustments to repay debt and for working capital).  Based on SEED's estimated holding in Leap of 43.9% at Completion (estimated due to the fact that Leap issued the current convertible loan notes ('CLNs') valued at €1.7M during 2021 (of which the Company subscribed for €742K) and the total amount (principal plus interest) of all outstanding notes (that will convert to units and will not be known until the date of Completion is confirmed), the Company expects to receive funds as follows:

(i)         €3.1 million upon Completion, expected late Q1 / early Q2 2023; and

(ii)        Up to €2.8 million on the first anniversary of Completion. Payment of the deferred consideration is subject to adjustment for any claims under customary warranties & indemnities

Completion is conditional upon the approval by a number of gambling authorities in Leap's key jurisdictions (including the UK and Malta), with the regulatory review process currently expected to take approximately 6 months.

The expected total blended return on investment over all of the Leap investments is disappointing at approximately 4%, albeit this is skewed by losses made on units purchased at high prices in 2018 (when the Gaming market was trading strongly).  By comparison, the more recent CLNs acquired by SEED's current management in 2020 & 2021 will return approximately 36% (being an expected €1M against a cost of €733K). 

SEED has invested a total of approximately £4.92 million  in Leap (comprised of a mix of equity, convertible loan notes and the term loan detailed above).  As at 31 August 2022, the Company revalued its interest in Leap to £6.07million (€7 million) in its Portfolio Valuation Update released on 2 September 2022. Details of the various investments and earlier valuations can be found in previous RNS announcements and the Company's financial statements.

Further to the Company's announcement of 8 June 2022, the term loan of €250,000 provided by SEED to Leap will be repaid in full on Completion, plus interest of approximately €18,000 (assuming Completion of 31 March 2023).

Following Completion, the Company will no longer have an interest in Leap.

In accordance with Schedule 4 of the AIM Rules for Companies, Leap's unaudited turnover for the year to 31 December 2021 was €3.1 million, with operating profit of €615,000. Based on the Company's carrying value of Leap as at 31 March 2022, the Company expects to report a loss on disposal of £3.2 million.*

* Assuming EURO:GBP exchange rate of 0.86

ENDS

  For further information on the Company please visit www.seedinnovations.co   or contact:

Notes

SEED Innovations is an AIM quoted investment company focused primarily on disruptive high growth life sciences and technology businesses particularly within the medical cannabis arena. The Company's strategy is to identify early-stage opportunities that have an upcoming investment catalyst and grow its portfolio in terms of value whilst limiting the number of investee companies to a level where relevant time can be devoted to each.

Leap is a developer of high-end virtual-sports, slots, and casino applications serving hundreds of gaming brands and generating tens of thousands of engagement points with end-users. Leap's attention to detail in its solutions and services is manifested in the modular engagement terms it offers to its operating partners and its ability to provide seamless experiences across mobile, desktop and retail environments. Leap is licensed by the MGA and certified for other jurisdictions worldwide,  including the United Kingdom, Sweden, the Netherlands, Romania, South Africa and Greece.