Inside Secure Puts Up $143M for Verimatrix

Jeff Baumgartner
12/5/2018
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Inside Secure has inked a deal to acquire Verimatrix for $143 million in cash, combining two companies focused on securing video and entertainment content with an eye toward growth areas like the Internet of Things and connected cars.

Key clients for France-based Inside Secure include HBO, AT&T Inc. (NYSE: T), Sky (NYSE, London: SKY), Canal+, BBC, Jupiter Telecommunications Co. Ltd. (J:COM) , Samsung, LG Electronics, Panasonic, Visa and Mastercard.

Verimatrix Inc. , which employs about 300 people and is based in San Diego, claims to have almost 1,000 operators on board spanning 100-plus countries. Examples of its customers include Chunghwa Telecom Co. Ltd. (NYSE: CHT) (Taiwan), Econet (Africa), Cablevision Argentina , Stofa (Denmark), Hathway (India), NetSat (Pakistan), Com Hem AB (Sweden), Megacable Comunicaciones (Mexico), Cincinnati Bell Inc. (NYSE: CBB), and Swisscom AG (NYSE: SCM).

Inside Secure billed this as a deal that will position it for a "major shift" into software- and cloud-based security platforms, and bring on global scale, initially in the field of entertainment, followed by efforts targeted to the IoT and connected cars. (See Inside Secure Deals for Verimatrix .)

The combo will create a larger competitor -- and some possible upheaval -- to a video and digital rights management sector that includes Nagra , Irdeto Access B.V. and Synamedia , the startup formed from what used to be Cisco Systems Inc. (Nasdaq: CSCO)'s video software unit. In September, Nagra teamed with Inside Secure by integrating its NexGuard QuickMark watermarking system with Inside Secure's content protection client for live TV streaming. (See Synamedia CEO Seeks New Video Service Tangents and Bye Bye Cisco Video Software, Hello Synamedia .)

Verimatrix generated "mid-single digit growth" and revenues of $78.7 million and EBITDA of $14.5 million for the 12-month period ended Sept. 30, 2018. The companied company would have pulled down $119 million on EBITDA of $21.5 million in 2017.

Further out, Inside Secure predicts revenues of $150 million and an EBITDA margin of 25% in 2021.

Inside Secure likewise expects $10 million in cost synergies per year thanks in part to economies of scale of development teams and suppliers and G&A elements.

The proposed $143 million deal includes the assumption of about $18 million in net cash. There's also an earn-out of up to $15 million subject to Verimatrix hitting certain EBITDA targets for 2018.

The deal is being financed via cash-on-hand of $38 million, committed private debt of $54 million provided by Apera Capital, and two equity transactions equal to $60 million.

The companies expect to close the deal in Q1 2019.

— Jeff Baumgartner, Senior Editor, Light Reading

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