has acquired privately-held Visual Connection
, a digital media and IPTV solutions provider for major media outlets in Europe and the Middle East. Financial figures below are in U.S. dollars unless otherwise noted.
Through its headquarters in the Czech Republic and sales offices in Bratislava (Slovakia), London, and Dubai, Visual Connection offers content digitization, localization and IP-based editing, storage, video players, and content streaming, as well as set up of digital network operations centers for television broadcasters, government entities, healthcare providers and telecommunications companies.
On October 5, 2008, KIT digital acquired 100% of the outstanding capital stock of Visual Connection (on a working capital and debt-neutral basis) for $2.5 million, paid in cash at the time of the closing. Subject to performance thresholds, KIT will pay an additional $7.5 million in KIT digital common shares or cash (or a combination thereof), at KIT's sole election, over a 24-month period. The performance benchmarks comprise certain net revenues and EBITDA targets for Visual Connection, as well as the retention of certain key personnel. The approximately 65 employees of Visual Connection will receive two million cash-exercise warrants or options in aggregate, vesting over four years, which are subject to the terms of KIT digital's employee incentive stock plan.
Management believes the terms of the acquisition will be immediately accretive. Visual Connection generated an estimated $13.0 million in revenues and more than $1.0 million in EBITDA during the trailing 12 months ended August 31, 2008. Looking forward, management estimates the operations of Visual Connection will contribute revenue and EBITDA of more than $4.0 million and $275,000, respectively, in the fourth quarter of 2008, exclusive of any operational or cost-savings synergies.
Prior to this acquisition, KIT was on pace to reach positive operating EBITDA position on a standalone during the course of the current fourth quarter. As a result of the acquisition (without factoring in the benefit of any revenue or cost synergies), management believes the combination of Visual and KIT is immediately operating EBITDA-positive, generating more than $40 million in revenues on an annualized basis. With now more than 400 clients across 25 countries, the regional revenue breakdown for the combined company is estimated to be 55% in EMEA (including South Asia); 37% in Asia/Pacific; and 8% in the Americas. The company expects to have at least a $5.0 million net cash position pro forma of the Visual Connection acquisition.
KIT digital is not issuing any new capital stock in connection with the closing of this acquisition, and continues to estimate 145.6 million shares outstanding pro forma of past share purchases and current registration processes. Based on the closing price of KIT's stock on Monday, October 6, 2008, $0.25, the pro forma market capitalization of the company is approximately $36.4 million.
Benefits of the acquisition of Visual Connection include:
- Complementary and robust combined product suite; i.e., extension of KIT digital's capabilities from its existing KIT VX IPTV software platform to content delivery network and NOC set-up and maintenance capabilities
- Substantial cross-selling opportunities in the context of a go-to-market plan focused on emerging markets
- Solidified market share leadership across Continental and Eastern Europe
- Seasoned management team with similar hard-driving, entrepreneurial culture
- Equity-focused, performance-based deal structure, aligning interests of Visual Connection management and KIT digital
- Immediate increase in revenue and profitability (accretive transaction).
Strengthened also by the recent accretive and debt-free acquisition of Morpheum, a web-based content management system provider, KIT digital has quickly emerged as one of the leading players in the fast-growing IPTV industry, with a focus on international markets.
The acquisition of Visual Connection demonstrates KIT's intention to be the clear industry leader in the Central and Eastern European region. TV advertising revenue from this market alone is estimated to double to $12 billion by 2013. Media spending in this region is growing four times as fast as in the U.K. and Western Europe, with more than 20 million broadband users added per year (Source: Informa Telecoms & Media). KIT digital plans to upsell its KIT VX platform into Visual's existing client base, while leveraging KIT's global network of salespeople to accelerate expansion of Visual's digitization and NOC capabilities into other emerging markets, particularly Middle East/North Africa, Southeast Asia and Latin America.
KIT digital and Visual Connection will market their combined product suite as a corporate presenter at the MIPCOM 2008 audiovisual conference in Cannes, France from October 13-17, 2008.
KIT digital will be filing a Form 8-K with the Securities and Exchange Commission, which will include further detail surrounding the Visual Connection acquisition.