The content security sector is being further consolidated with the news that mobile and connected devices security solutions specialist Inside Secure has entered into an exclusivity agreement to acquire network-connected devices revenue security and enhancement specialist Verimatrix in an estimated $125 million dollar deal.
Commenting on the proposed transaction, Amedeo D’Angelo, Chairman and CEO of Inside Secure, said: “Over the years, we have built a unique position to bring security at the heart of connected devices and apps with a leading position in the OTT video services market. Verimatrix has become a key player in software-based security for Entertainment content management through its scalable and comprehensive platform with a deep expertise in cloud-based data analytics and intelligence on security performance and video users’ behaviours.
“In this context, I’m very pleased to move ahead with the project to acquire Verimatrix which is the perfect fit to strengthen scale and reach of our value proposition in end markets that are fast shifting towards software and cloud-based security solutions while video content consumption is becoming multi-device and multi-format.”
“We are looking forward to combining both businesses to offer our clients the best value proposition in security, starting with entertainment and moving towards Internet of Things and Connected Cars, and to continue to create value for our shareholders.”
Tom Munro, CEO of Verimatrix, declared: “This transaction allows a great combination of technologies and expertise, bringing two well-respected market players together. It’s exciting to create a company with such a clear focus, a global presence, and a depth of expertise in the applications of security and analytics across critical market segments.”
The pair say the transaction leads to the creation of a trusted global powerhouse in software-based security with significant penetration of the Entertainment market, positioned to capture a well-established, but still fast-growing, demand for security solutions in the context of:
The combination offers Inside Secure a unique value proposition within the Entertainment security market, enabling content providers and service operators to manage the most complex video security challenges leveraging:
Beyond the Entertainment market, the combination provides firm foundations to accelerate penetration of other growth verticals that face a critical security challenge, notably IoT and Connected Cars, by leveraging a high-integrity device credential management platform and enabling comprehensive, end-to-end security technology and services offerings in such application verticals.
Additionally, the transaction will enable Inside Secure to tackle opportunities in advanced cloud-based analytics beyond the Entertainment market. The company will maximize the value of data analytics technologies across all its markets to provide its customers with real-time visibility over security performance (e.g.,threat and attack detection and analysis) and user behaviour.
The contemplated transaction affords Inside Secure the ability to take advantage of significantly greater reach and scale.
The combined entities would have generated $119 million in adjusted revenue and $21.5 million in EBITDA in 2017 on an IFRS pro forma basis. The new group will benefit from its new scale and leverage the Verimatrix resilient revenue base and from the mix of both recurring and repeat revenue from both companies.
Leveraging a strong technology and product portfolio as well as a complementary customer base, the combination of both companies will generate multiple up-selling and cross-selling opportunities while benefiting from economies of scale.
In addition, Inside Secure anticipates $10 million cost synergies per year on a run rate basis, once fully implemented, representing 10 per cent of combined operating expenses base due to:
Economies of scale with development teams, suppliers, ecosystem partners and device-provisioning costs; and
General & Administrative optimisation that takes full advantage of the combined scale, rationalisation and streamlining of the organisation.
The transaction is expected to be accretive to Inside Secure’s earnings from 2019, primarily as a result of the incremental earnings brought by Verimatrix and the generation of $4 million synergies in 2019 prior to full implementation of anticipated synergies.
Moving forward, Inside Secure expects to reach revenues of $150 million while generating an EBITDA margin of 25 per cent in 2021 for the combined entities and at constant perimeter.
Under the terms of the acquisition agreement, the transaction consideration consists of an up-front consideration for the enterprise value estimated at $125 million, plus an agreed-upon payment for transferred net cash estimated at $18 million, plus as the case may be a working-capita adjustment a closing, and, finally, an earn-out of up to $15 million subject to Verimatrix achieving a certain EBITDA target for calendar year 2018.
Based on current information, Inside Secure estimates that it will have to pay an aggregate consideration of approximately $143 million at closing plus an estimated $9 million earn-out in the second quarter of 2019.
In order to align interests of key employees and executives of the future combined group with those of the shareholders over the long term, the board also decided to request that shareholders authorize the grant of additional stock options and performance shares in an aggregate maximum of 1.3 million shares.
Prior to the signing of the acquisition agreements, Inside Secure’s works council in France will be consulted with respect to the debt financing and the equity transactions contemplated in the context of the acquisition of Verimatrix.
The transaction is intended to be signed in January 2019 subject primarily to (i) completion of an ‘information and consultation’ process with Inside Secure’s works council in France and, (ii) vote of Inside Secure’s shareholders on the equity transactions. It is expected to close in the first quarter of 2019, subject to customary closing conditions.
In the context of the above-mentioned equity transactions, Inside Secure will issue two prospectuses to be cleared (visés) by the French financial market authority (the Autorité des marchés financiers – the ‘AMF) in respect of the redeemable bond issue and the rights issue.