KIT digital Acquires ioko, Solidifies Position as Global Leader in IP Video Management and Delivery
ioko Strengthens KIT’s Capabilities in Managing Complex and Large-Scale IP Video Deployments in the U.S. and the U.K. , including AT&T U-verse, BSkyB SkyPlayer, BBC iPlayer, Univision’s Digital Media Platform and Disney & Sony’s FilmFlex
PRAGUE, Czech Republic(11 Apr 2011)
KIT digital, Inc. (NASDAQ: KITD), a premium software and technology services provider for multi-screen video delivery, has signed a definitive agreement to acquire 100 percent of the capital stock of San Diego, California and London, U.K.-based ioko365 Ltd ("ioko") for total prospective net consideration of approximately $79.4 million, including future performance-based incentive payments. (All currency figures are in U.S. dollars.)
ioko provides end-to-end managed cloud-based platform solutions for multi-screen video delivery over connected Internet Protocol ("IP") devices to tier-one telco, cable, media and entertainment companies around the world, with a particular focus on North American, Northern European and Australasian markets. ioko's sophisticated over-the-top ("OTT") capabilities--allowing premium video services delivered over the Internet to be formatted for and presented on televisions and other connected devices--and its closed-network IPTV solutions are expected to add further depth to KIT digital's OTT and connected device platform offerings for its network operator and media and entertainment verticals.
ioko currently generates approximately $54 million in annualized revenues related to IP video asset management, through a combination of recurring managed service fees, software licenses, maintenance fees and professional services. The company operates profitably with minimal capex requirements, and is expected to contribute in-line to KIT digital's stated 23% EBITDA margin target for fiscal 2011. Therefore, the acquisition of ioko is expected to be substantially accretive on both an EBITDA and cash-flow multiple basis.
ioko specializes in large-scale, complex deployments and serves approximately 50 clients, including AT&T, BBC, BSkyB, Channel 4, Diageo, Disney, Electronic Arts, FOXTEL, Evolution Gaming, ITV, Liberty Global, LoveFilm, Molson Coors Brewers, Samsung, SeeSaw, Universal Music, Univision and VimpelCom.
"This transaction represents the culmination of a three-plus year dedicated process to achieve global scope and market share in the IP video platform software sector, both from a geographical and capabilities perspective," said Kaleil Isaza Tuzman, chairman and chief executive officer of KIT digital.
"It also represents the successful conclusion of a carefully managed acquisition process for which we raised outside equity capital in December 2010, and which necessitated the navigation of complex shareholder and regulatory challenges," continued Isaza Tuzman. "We are very pleased that we were able to complete the acquisition of ioko under the originally negotiated terms and close to our originally intended timeframe, without ultimately having to go through formal U.S., U.K. or E.U. anti-trust review. We now look forward to integrating our two firms, rapidly realizing the sales synergies we anticipate, and focusing on organic growth and free cash-flow generation going forward."
Based on the closing price of KIT digital common stock of $11.51 on April 8, 2011, the total gross consideration KIT digital will pay upfront for ioko is approximately $91.4 million, comprised of $74 million in cash and 1,509,805 restricted shares of KIT common stock. After adjusting for approximately $19 million of cash and approximately $9 million of additional positive net working capital expected on ioko's balance sheet at the time of closing, the net upfront consideration to be paid for ioko is expected to be approximately $63.4 million on a debt-free and cash-free basis.
The net upfront consideration of $63.4 million is exclusive of performance-based earn-outs, incentive and personnel retention payments, which are estimated not to exceed $16 million over a period of two and a half years after closing, payable in KIT digital restricted stock. Therefore, over time, prospective net consideration over time is expected not to exceed $79.4 million in total.
KIT digital anticipates assuming a relatively small amount of short-term debt at closing, in order to finance ioko's accounts receivables, which the company expects to pay down quickly.
"We believe the valuation and structure of the ioko acquisition is beneficial to KIT digital shareholders and consistent with the approach we have described with respect to this transaction since the beginning of the year," commented Isaza Tuzman. "While the majority of consideration will be paid in cash, we reserved the equity and earn-out portion of consideration for personnel who will be contributive to our future success."
Isaza Tuzman continued: "Although it was hard to stay silent over the last several months in the face of rumors surrounding the status of the transaction and speculation about the intended target, the ‘no comment' route was definitely best as we did not want to do anything to destabilize the ultimate outcome. ioko was our preferred target and we reached a definitive agreement exactly in line with the originally negotiated terms. The delay in announcing the acquisition was due to circumstances surrounding the management of selling shareholder needs and our careful navigation of the anti-trust process-which has worked out well for us, as we ended up arriving at early terminations or ‘no application' opinions on regulatory matters. Accordingly, we expect to effectuate closing of this acquisition within a matter of a few weeks."