has acquired privately-held Brickbox Digital Media
along with its international subsidiaries and affiliates. All currency figures below are in U.S. dollars. Brickbox Digital Media is one of Europe's leading providers of traditional and next-generation digital video asset management solutions. The company serves as an intermediary between content owners and distributors, offering products and services that include mezzanine file management, localization, digital cinema mastering, and authoring of media for replication. Brickbox uses order scale across regions to realize cost efficiencies for a global client base, which also requires outsourced replication, packaging, and distribution to the physical point of sale. Brickbox primarily serves European distributors out of its Prague headquarters and back-office operations in Sofia, Bulgaria, with sales and account management offices in Los Angeles, London and several locations in Central and Eastern Europe. Brickbox manages its business through international subsidiaries and affiliates, such as International Digital Management in the U.S., in order to comply with local employment and content rights regulations.
Based on recently closed August results, Brickbox and its affiliates derive approximately $12 million in annualized revenues, with an estimated $1 million in standalone profit over the trailing twelve months. Based on pro forma synergies and associated integration and restructuring expenses, KIT digital expects the acquisition to be accretive on both a revenue and operating cash-flow basis.
KIT digital paid upfront consideration of approximately $10.1 million (after working capital adjustment and $1.0 million hold-back related to consolidation of Brickbox's minority interests), comprised of approximately $6.6 million in cash and 339,476 shares of KIT digital common stock. KIT digital also agreed to pay the shareholders of Brickbox consideration equal to 10% of forward revenues from Brickbox over a four-year period, subject to a $20 million annual revenue threshold for each year and certain profitability thresholds. This earn-out consideration may be paid in cash or stock at KIT digital's election, with the stock portion of consideration valued using a 30-day volume weighted average price of KIT digital common stock on each of the four anniversaries from closing, subject to a $10 price floor. The transaction involves customary escrows against representations and warranties, and all stock issuances associated with the transaction are subject to 15-month lock-up provisions to help ensure management's long-term commitment and upside in the combined business.
Brickbox has approximately 85 employees in its main Prague and Sofia offices, with additional business development and account management staff in the U.S., UK, Bulgaria, Hungary, Poland, Romania and Slovakia. Brickbox clients include Arrow Films, Eagle Rock Entertainment, Momentum Pictures, 20th Century Fox Entertainment, Warner Home Video, Universal Studios, and numerous European content distributors, including Bontonfilm and Monolith Video.
KIT digital closed the acquisition of Brickbox on September 21, 2010. The company expects there will be modest restructuring and integration expenses related to the acquisition, totaling approximately 20% of the original purchase price over time.
Pro forma of the issuance of common shares and cash outlay related to the purchase consideration as well as restructuring and integration charges, KIT digital estimates it will have approximately 24.0 million shares outstanding, and hold in excess of $46 million in cash and equivalents.