Mr. Ted Hastings reports

IONIK ACQUIRES SHIFT44

Popreach Corp. (doing business as Ionik) has acquired substantially all of the assets of S44 LLC (SHIFT44 or seller), a first party data acquisition, lead generation and performance marketing platform headquartered in Holbrook, N.Y., for a total aggregate purchase price of approximately $40-million (U.S.), with the total consideration consisting of a combination of cash, debt and stock.

Founded in 2016 by Corey McCutchen and Joseph Barreca, SHIFT44 has grown to a team of 16 people working with over 200 clients across more than 40 different verticals. SHIFT44 has been named to the Inc. 5000 list for four consecutive years, including in 2023. SHIFT44 will continue to be led by Mr. McCutchen and Mr. Barreca, who will both become insiders of Ionik by virtue of being officers of the acquired business following closing of the transaction.

Key transaction benefits:

• Financial profile: SHIFT44 organically grew revenues at over 15 per cent in its most recently completed fiscal year. The company generates consistent adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and adjusted free cash flow and operates at a financial scale that is a solid enhancement to Ionik's accelerating financial profile.
• First party data acquisition platform: SHIFT44's targeted performance marketing platform materially accelerates the growth of Ionik's first party data asset that is at the core of any performance marketing company's competitive advantage.
• Synergistic performance marketing technology: SHIFT44's data acquisition and lead generation technologies and Ionik's user acquisition, traffic distribution and monetization technologies are highly synergistic with an extensive history of commercial integration. SHIFT44 and Ionik excel at user acquisition across different marketing channels. Combining these best-in-class capabilities and supporting technologies is expected to lead to reduced acquisition costs and increased traffic volumes across multiple user paths. Similarly, combining monetization solutions and technologies that leverage artificial-intelligence-based and machine-learning-based optimization algorithms of both platforms is expected to drive higher revenue per user while delivering highly targeted customers and improved return on investment for advertisers. The anticipated results of these integrations are accelerated revenue growth and improvements to collective margins.

Management commentary

"SHIFT44 has built an extensive first party data acquisition and performance marketing platform that synergistically binds with Ionik's previous acquisitions," said Ted Hastings, chief executive officer of Ionik. "This is our fourth acquisition and extends the capabilities of our performance marketing platform. Specifically, SHIFT44 allows Ionik to directly source advertisers, and enables them to achieve their customer acquisition and brand building objectives at an efficient cost-per-click or cost-per-acquisition basis across all channels, including search, social, native, push, e-mail and SMS. In doing so, we amass first party data that is a key long-term strategic asset of Ionik."

Added Mr. McCutchen, CEO and co-founder of SHIFT44: "This was a very calculated step in our journey, and after careful review of several strategic options we determined that our platform would meaningfully accelerate Ionik's growth with deal terms that allow us to participate in that value creation. We will be able to leverage Ionik's platform to better monetize our existing audience which we expect to result in a direct improvement to margins. That margin improvement will allow us to invest more in building our first party audience which we believe will accelerate organic growth."

Key terms of the transaction

Pursuant to the definitive transaction agreement entered into on Nov. 20, 2023, among Ionik, SHIFT44 Inc. (Acquisition Subsidiary), a wholly owned subsidiary of Ionik, the seller and certain principals of the seller, Acquisition Subsidiary acquired substantially all of the assets of SHIFT44 for aggregate consideration of approximately $40-million (U.S.), comprising $17.75-million (U.S.) in cash, the issuance of 4,790 Class B non-voting shares of Acquisition Subsidiary and the issuance of a convertible debenture in the aggregate principal amount of $16.75-million (U.S.). The purchaser is also assuming up to $1-million (U.S.) in current liabilities on SHIFT44's balance sheet.

The Class B shares are exchangeable at the option of the seller into common shares of the company at any time following closing on the basis of 9,238 Ionik shares for every one Class B share, entitling the seller to an aggregate of 44,250,020 Ionik shares, with an approximate value of $5.5-million (U.S.) based on the Nov. 20, 2023, closing price per Ionik share of 17 cents and a Canadian dollar:U.S. dollar exchange rate of 1.3722. The Class B shares do not entitle the seller to vote on any matters in respect of Acquisition Subsidiary, other than as required pursuant to applicable law, nor do the Class B shares entitle the seller to any rights in respect of Ionik, voting or otherwise, until such time as the Class B shares have been exchanged for Ionik shares.

The debenture is non-interest-bearing, repayable on Nov. 30, 2026, and convertible into Ionik shares at the option of the seller exercisable at any time prior to Nov. 30, 2026, at 78 U.S. cents per Ionik share, representing a premium to the closing price of approximately 630 per cent. The debenture is secured by a security interest granted to the seller over the assets of Acquisition Subsidiary, comprising the acquired assets, and such security interest ranks subordinate to Ionik's senior lenders.

Of the cash consideration, $250,000 (U.S.) will be held back on closing and released on the one-year anniversary of closing, subject to reductions, if any, in connection with the seller's obligations pursuant to the indemnification and net working capital adjustment provisions set forth in the transaction agreement. It is expected that SHIFT44 will have an excess in working capital of approximately $1.8-million (U.S.), which excess will be paid out to the seller in cash within six months following closing.

The seller and each of Mr. McCutchen and Mr. Barreca have, pursuant to the transaction agreement, agreed to customary standstill provisions for a period of at least two years following closing. Furthermore, the seller and each of Mr. McCutchen and Mr. Barreca have agreed to certain restrictions against the transfer of the Class B shares and any Ionik shares issued in connection with the exchange of such Class B shares or pursuant to the debenture, over a three-year period, with one-third of such locked-up shares being released from restrictions every 12 months commencing on the one-year anniversary of closing.

The Bank of Montreal, as the sole arranger, sole bookrunner and administrative agent, and National Bank of Canada, Export Development Canada and Toronto Dominion Bank, as syndicate lenders, under Ionik's $115-million (U.S.) syndicated credit facility previously announced on May 25, 2023, have shown their support for the transaction by approving an advance under the syndicate credit facility's delayed draw term loans to finance the full amount of the cash consideration payable in connection with the transaction.

Given capital market conditions, Ionik has chosen to forgo raising capital in the public markets and instead has sourced the cash consideration from its existing syndicate credit facility, issued Class B shares (exchangeable for Ionik shares as outlined above) to the seller, and issued the debenture with no interest, a conversion price fixed at a premium to the closing price, and a maturity date that allows for Ionik to realize on planned synergies and cash generation from this transaction prior to repayment.

The transaction has been conditionally approved by the TSX Venture Exchange, subject to customary conditions, and remains subject to final acceptance by the exchange.

About Popreach Corp.

Ionik, a Tier 1 issuer on the TSX Venture Exchange, with shares also trading on OTCQX Best Market, is a performance marketing technology company focused on assembling the most effective and complete suite of advertising, marketing and monetization solutions for brands, advertisers and publishers. It acquires, optimizes and scales market-leading digital technology businesses providing cross-platform, performance-driven advertising and data solutions to attract, engage and monetize high-value consumers. Ionik is a registered business name of Popreach and is the name under which the company currently operates its business.

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