Kit Digital Buys Visual Connection

Kit Digital acquires IPTV solutions provider Visual Connection

October 8, 2008

3 Min Read

DUBAI, U.A.E. and PRAGUE, Czech Republic -- KIT digital, Inc. (OTC Bulletin Board: KITD), a leading global provider of IPTV enablement technology and video-centric interactive marketing solutions, has acquired privately-held Visual Connection, a.s., 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 (NOCs) 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.

Kit Digital

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