ACQUISITION OF PRIME VISIBILITY MEDIA GROUP, INC. BY BLINKX PLC AND TRADING STATEMENT
Integrating the world’s largest video search engine with a leading text search platform
The Boards of blinkx plc (AIM:BLNX), the world’s largest video search engine (“blinkx” or the “Company”) and Prime Visibility Media Group, Inc., a leading online performance advertising network and digital marketing agency (“PVMG”) are pleased to announce today that they have entered into a definitive stock purchase agreement (the “Purchase Agreement”) pursuant to which blinkx has acquired the entire issued and to be issued shares of common stock and the entire issued and to be issued shares of preferred stock of PVMG (the “PVMG Shares”) for an aggregate consideration of US$36 million (£22.4 million), to be satisfied in cash (the “Acquisition”).
The Acquisition consideration of US$36 million (£22.4 million) will be funded through blinkx’s existing cash balances and the proceeds from a proposed placing of new ordinary shares in the capital of the Company (the “Placing”) announced separately today. A separate announcement is being issued by the Company this morning which will contain details of the Placing.
In the event that the Placing does not complete for any reason, the Acquisition will be funded entirely from the Company’s existing cash balances.
Further details of the Acquisition are set out in the Appendix to this document.
- PVMG’s network averages over 600 advertisers (measured over the 6 month period to 30 September 2011) and 350 publishers. Processing 1.5 billion queries, and generating 14 million ad interactions every day, PVMG has the reach and volume to meet the demands of metric-driven advertisers and enables publishers to monetise their traffic from multiple forms of advertising.
- Following the Acquisition, blinkx expects to integrate PVMG’s platform with blinkx’s so as to enable the blinkx video search engine to respond to a portion of PVMG’s 1.5 billion daily queries with relevant video results. Where available these videos can be paired with rich media video ads that typically monetise at a higher rate.
- In September 2011, the average effective cost per mille (eCPM) of PVMG’s sponsored text advertisements was approximately US$5.00, while blinkx’s standard untargeted sponsored video advertisements were priced at US$13.00. blinkx believes that the combined group will be able to realise some of the differential between these two rates to generate incremental revenue.
- PVMG also operates a digital marketing agency which offers consulting services to assist customers in developing Internet marketing strategies to establish and enhance their digital presence, through Search Engine Optimisation (SEO), Search Engine Marketing (SEM), social media, email and mobile marketing services.
- Following the Acquisition, blinkx expects that the agency business will provide useful insights into its brands’ Internet marketing strategies, which will enable blinkx to offer more compelling advertising solutions.
- PVMG is led by a team of seasoned executives with deep and diverse expertise in the search, rich media, mobile and agency sectors of the digital marketing industry. blinkx expects to benefit from the strategic addition of PVMG’s senior leadership in key areas across its business. PVMG CEO, S. Brian Mukherjee, will be joining blinkx as EVP and GM for Search and Mobile.
- PVMG’s consolidated audited financial statements for its financial year ending 31 December 2010 show gross assets of US$22.4 million, and gross revenues of US$29.9 million, and a net loss for the period of US$389,511.
- The integration is expected to begin immediately, and by the end of the financial year ending 31 March 2013 the Acquisition is expected to have an annual revenue run-rate of between US$35 million and US$40 million.
Commenting on the Acquisition, Suranga Chandratillake, CEO of blinkx, said:
“Online video advertising continues to be the fastest growing format by a significant margin, and is forecast to reach $3.5 billion over the next three years. Brands continue to move an increasing amount of their TV advertising budgets to online video, but need to be able to reach an audience of equivalent size on the Web. We’re extremely excited about the Acquisition because the integration of our video search engine with PVMG’s text search platform will enable us to tap into a new audience of intent-driven consumers and deliver TV-style brand advertising to them, which gives us the opportunity to expand our customer reach and increase PVMG’s margins over time.”
Commenting on the Acquisition, S. Brian Mukherjee, CEO of Prime Visibility Media Group, said:
“As a close knit team with the shared sense of optimism to lead the next revolution of digital advertising, we are proud of our accomplishments at PVMG. We believe that the Acquisition puts us at the very heart of one of the most dynamic sectors of the digital advertising industry – online video. The combination of our powerful, proven high frequency transaction engine and audience reach with blinkx’s unrivalled video search technology and vast content index unlocks a tremendous opportunity for us to develop high value online video advertising solutions.”
blinkx Current Trading
Trading for the first half of the financial year ending 31 March 2012 has been strong. For the half year period to 30 September 2011, the Company expects to report revenues of approximately US$44.6 million, an increase of over 60% from the corresponding period ended 30 September 2010, and to report EBITDA for the half year of approximately US$5.7 million and an operating profit for the half year of approximately US$4.9 million , an increase of approximately 95% over the corresponding period ended 30 September 2010. For the half year period to 30 September 2011, blinkx expects to report cash and cash equivalents of approximately US$52.9 million. blinkx is pleased to report that the integration of Burst Media Corporation is proceeding very well. blinkx expects that the cost of restructuring will be approximately US$2.5 million; less than the market predicted US$4.5 million. The Company has also seen continued growth of the AdHoc advertising platform with new brands, including Kelloggs, Disney, Pimms and Nivea. blinkx expects to announce its half year results on 11 November 2011.
Established in December 2007, and headquartered in New York, NY, Prime Visibility Media Group, Inc., is a digital marketing holding company with three operating units: Prime Visibility, LLC an award winning search marketing agency; AdOn Network, Inc., a long tail performance, cost-per-click advertising network; and Predic.tv, LLC, an early stage rich media advertising company, which intends to target premium online advertisers and publishers.
blinkx plc +44 (0)1223 488 500
Suranga Chandratillake, Founder and CEO +1 (415) 655 1450
Frances Smith, Company Secretary
Citigroup Global Markets Limited +44 (0)20 7986 4000
(NOMAD and broker to blinkx plc)
FTI Consulting (formerly Financial Dynamics) +44 (0)20 7831 3113
blinkx is the world’s largest and most advanced video search engine. Today, blinkx has indexed more than 35 million hours of audio, video, viral and TV content, and made it fully searchable and available on demand. blinkx’s founders set out to solve a significant challenge - as TV and user-generated content on the Web explode, keyword-based search technologies only scratch the surface. blinkx’s patented search technologies listen to - and even see - the Web, helping users enjoy a breadth and accuracy of search results not available elsewhere. In addition, blinkx powers the video search for many of the world’s most frequented sites.
blinkx is based in San Francisco, USA. and Cambridge, UK.
This announcement is for information only and, save as expressly set out herein, does not constitute an offer or invitation to underwrite, subscribe for or otherwise acquire or dispose of any securities or investment advice in any jurisdiction in which such an offer or solicitation is unlawful, including without limitation, the United Kingdom, the United States, Australia, Canada or Japan. Persons needing advice should consult an independent financial adviser.
This announcement has been issued by and is the sole responsibility of blinkx plc (the “Company”). No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Citigroup Global Markets U.K. Equity Limited or by any of its affiliates or agents as to or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.
Citigroup Global Markets U.K. Equity Limited (“Citi”), which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for the Company and for no-one else, and will not be responsible to any other person for providing the protections afforded to the customers of Citi or in relation to the contents of this announcement or any other transaction, arrangement or matter referred to herein.
This announcement is not an offer of securities for sale in the United States. The securities referred to herein may not be offered, sold or transferred, directly or indirectly, within the United States absent registration under the US Securities Act of 1933 (the “Securities Act”) or an exemption therefrom. The Company has not registered and does not intend to register any of the securities under the US Securities Act. There will be no public offer of any securities of the Company in the United States.
The price of shares and the income from them may go down as well as up and investors may not get back the full amount invested on disposal of the shares.
Neither the content of blinkx’s website (or any other website) nor the content of any website accessible from hyperlinks on blinkx’s website (or any other website) is incorporated into, or forms part of, this announcement.
This announcement contains (or may contain) certain forward-looking statements with respect to blinkx’s plans and its current goals and expectations relating to its future financial condition and performance and which involve a number of risks and uncertainties. blinkx cautions readers that no forward-looking statement is a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as ‘aim’, ‘anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’, or other words of similar meaning. Examples of forward-looking statements include, among others, statements regarding blinkx’s future financial position, income growth, impairment charges, business strategy, projected levels of growth in its markets, projected costs, estimates of capital expenditure, and plans and objectives for future operations of blinkx and other statements that are not historical fact.
By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, UK domestic and global economic and business conditions, the effects of continued volatility in credit markets, market-related risks such as changes in interest rates and exchange rates, the policies and actions of governmental and regulatory authorities, changes in legislation, the further development of standards and interpretations under International Financial Reporting Standards (“IFRS”) applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS, the outcome of pending and future litigation, the success of future acquisitions and other strategic transactions and the impact of competition - a number of which factors are beyond blinkx’s control. As a result, blinkx’s actual future results may differ materially from the plans, goals, and expectations set forth in blinkx’s forward-looking statements. Any forward-looking statements made herein by or on behalf of blinkx speak only as of the date they are made. Except as required by the FSA, AIM or applicable law, blinkx expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any changes in blinkx’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.
US$ amounts in this announcement have been converted into £ Sterling at an exchange rate of US$1.6082 = £1, the rate prevailing at close of business in London on 8 November 2011, the latest practicable time and date prior to this announcement.
SUMMARY OF THE PRINCIPAL TERMS OF THE ACQUISITION AGREEMENT
The Acquisition has taken place today (being “Closing”) on the terms, and subject to the conditions, set out in the definitive stock purchase agreement (the “Acquisition Agreement”) entered into between the Company, PVMG, the holders of all of the issued ordinary and preferred stock (the “PVMG Shares”) in the capital of PVMG (together, the “Sellers”) and the Sellers’ Representative. The principal terms of the Acquisition Agreement are set out below.
The Company has paid US$36 million (£22.4 million) (the “Purchase Price”) in cash to the Sellers, in consideration for the acquisition of all of the PVMG Shares, from which the following amounts have been deducted:
(i) US$921,380, being the aggregate of the MIU Payments, as defined in this paragraph. Participants in PVMG’s management incentive unit plan (“MIU Participants”) were entitled to a payment for vested management incentive units held by each such MIU Participant at the date of Closing pursuant to the terms of that plan (an “MIU Payment”). The Company has agreed to pay to each MIU Participant his or her MIU Payment on Closing (or on the next payroll date of PVMG following Closing). The MIU Payment actually received by a MIU Participant is subject to the deduction of any applicable taxes and deductions;
(ii) US$1,128,507, being the Unvested MIU Amount, as defined in this paragraph. The “Unvested MIU Amount” is equal to the amount of consideration that MIU Participants would have received for unvested management incentive units if such units had been vested at the date of Closing. The Company has agreed to pay a portion of the Unvested MIU Amount to certain of the PVMG employees one year after the date of Closing provided that each such employee remains in service with PVMG through such payment date;
(iii) US$435,152.78, being the aggregate amount of the Specified Payments, as defined in this paragraph. Two former employees of PVMG agreed at the time of their respective terminations to defer payment of an amount of their compensation until the time PVMG underwent a liquidity event or change of control. The Acquisition triggers the payment of the deferred compensation (the “Specified Payments”), and the Company has agreed to pay the Specified Payments directly to the former employees on Closing (or on the next payroll date of PVMG following Closing, if the Specified Payments are subject to the deduction of applicable taxes and deductions);
(iv) US$5,206,248.30, being the Indebtedness of PVMG being paid at Closing, defined as: (a) any indebtedness for borrowed money; (b) any obligations evidenced by bonds, debentures, notes or other similar instruments; (c) any obligations to pay the deferred purchase price of property or services or deferred management fees, except trade accounts payable and other current liabilities arising in the ordinary course of business; (d) any obligations as lessee under capitalised leases; (e) any indebtedness created or arising under any conditional sale or other title retention agreement with respect to acquired property; (f) any obligations; contingent or otherwise, under acceptance credit, letters of credit or similar facilities, and (g) any guarantee of any of the foregoing. The Company paid an amount equal to the Indebtedness to PVMG (or to the relevant creditor on its behalf) at Closing;
(v) US$3,600,000, being the Indemnity Escrow Funds (as more particularly described below);
(vi) US$200,000, being the Working Capital Escrow Amount (as more particularly described below);
(vii) US$497,595, being the transaction expenses, which were paid by the Company on Closing.
The Indemnity Escrow Funds, the Working Capital Escrow Amount and the Unvested MIU Amount have each been paid into an escrow account (the “Escrow Account”) operated by U.S. Bank (the “Escrow Agent”), and are held by the Escrow Agent pursuant to the terms of an escrow agreement entered into between the Company, the Sellers, the Sellers’ Representative and the Escrow Agent.
The Indemnity Escrow Funds will be used to satisfy claims by the Company under the representations and warranties described below. Within 30 days of the completion of the annual audit of the financial statements of the Company for the year ending on 31 March 2012 (and in any event no later than 30 June 2012), an amount in cash equal to 50% of the Indemnity Escrow Funds (after having first deducted all amounts released from the Indemnity Escrow Funds prior to such date and the aggregate amount of all claims outstanding under any notice of claim for breach of the representations or warranties described below delivered on or prior to such date and which remain pending on such date) shall be released to the Sellers from the Escrow Account. Within 30 days of the completion of the annual audit of the financial statements of the Company for the year ending on 31 March 2013 (and in any event no later than 30 June 2013) (the “Second Release Date”), the balance of the Indemnity Escrow Funds (after having first deducted the aggregate amount of all claims outstanding under any notice of claim for breach of the representations or warranties described below delivered on or prior to such date and which remain pending on such date) shall be released to the Sellers from the Escrow Account.
The Working Capital Escrow Amount will be used to satisfy any amount by which PVMG’s working capital at Closing is calculated (on the terms set out in the Acquisition Agreement) to be less than negative US$75,040, in which event the Company shall be entitled to receive an amount equal to the shortfall from the Working Capital Escrow Amount and (if the shortfall exceeds the Working Capital Escrow Amount) the Indemnity Escrow Funds. Following such event, any amount of the Working Capital Escrow Amount remaining in the Escrow Account shall be released to the Sellers’ Representative in accordance with the terms of the Escrow Agreement, for further distribution to the Sellers. In the event that the working capital at Closing exceeds negative US$75,040, the Working Capital Escrow Amount will be released from the Escrow Account to the Sellers’ Representative for further distribution to the Sellers, and the Company shall pay to the Sellers an amount equal to the amount by which the working capital at Closing exceeds negative US$75,040.
The Sellers’ Representative is entitled to reimbursement for costs, and indemnified for losses, incurred while performing its responsibilities under the Escrow Agreement. The Sellers’ Representative may recover its costs and losses by submitting a claim against the Indemnity Escrow Account or the Working Capital Escrow Account, and all amounts to be released to the Sellers from such Account will be reduced by the amount of any such pending or paid claim.
The Unvested MIU Amount will be released by the Escrow Agent to the Company on the first anniversary of Closing for payment by the Company to the employees entitled to their respective portions of the Unvested MIU Amount in accordance with terms provided to such employee effective upon the Closing.
4. Representations and Warranties
PVMG has made extensive representations and warranties to the Company with respect to the PVMG and its subsidiaries. These include representations and warranties relating to PVMG’s and its subsidiaries’ organisation, good standing, capitalisation, authority, due authorisation, financial statements, indebtedness, accounts receivable, taxes, compliance with laws, title to property, condition of assets, contracts, the absence of certain adverse events, permits, no conflicts, consents, litigation, absence of certain changes or events, employee benefit plans, employment matters, environmental matters, intellectual property, insurance, the absence of brokers or finders, bank accounts, books and records, suppliers and product warranties. The representations and warranties are subject to certain exceptions as set out in the disclosure schedule attached to the Acquisition Agreement.
In addition, the Sellers have severally, but not jointly, made certain representations and warranties to the Company, including with respect to their title to the PVMG Shares, authority, due authorisation and no litigation.
The Company is also making certain representations and warranties to the Sellers, including in relation to corporate organisation, good standing, authority, due authorisation and the absence of brokers or finders.
The Sellers have agreed that for the 5 years following Closing they shall keep confidential all information concerning PVMG and its subsidiaries, subject to certain exceptions, and that for the 3 year period following Closing they shall not solicit the employment or engagement for services of any employees of, or contractors or consultants to PVMG or its subsidiaries. The Company and the Sellers have covenanted to the effect that the Company shall make such tax filings as may be necessary following Closing in respect of PVMG, and the Sellers shall cooperate with the Company insofar as is necessary to allow the Company to make such returns, and shall retain relevant books and records for that purpose.
6. Warranty Claims and Claims under the Covenants
Each Seller has agreed, severally, but not jointly, to indemnify and hold harmless the Company and its affiliates, and their respective stockholders, members, managers, officers, directors, employees, agents, successors and assigns (together, the “Buyer Indemnitees”) from and against all losses arising from any breach of the representations, warranties or covenants given by the Sellers. The representations and warranties are referred to in paragraph 4 above. The covenants are summarised in paragraph 5 above.
In addition, each Seller has agreed, severally, but not jointly, to indemnify and hold harmless the Buyer Indemnitees from and against all losses caused by: (i) any breach of the warranties and representations given by PVMG, which are referred to in paragraph 4 above; (ii) the failure to correctly calculate the MIU Payments, Indebtedness, Unvested MIU Amount, and Specified Payments (in each case, referred to in paragraph 2 above); (iii) claims arising from certain pending litigation in which PVMG is involved, and which is described in the disclosure schedule; (iv) claims from persons who were officers, directors, employees or agents of PVMG or one of its subsidiaries related to the right to indemnification for actions taken or events which occurred prior to Closing, and (iv) any fees, expenses or other payments incurred or owed by a Seller, PVMG or and of its subsidiaries to any agent, broker or investment banker etc. in connection with the transactions contemplated by the Acquisition Agreement.
The liability of the Sellers described above is limited to the amount of the Indemnity Escrow Funds, other than for claims for losses arising out of a breach of certain key representations and warranties (such as the warranty relating to the capitalisation of PVMG) (the “Specified Representations”) and breaches of the covenants referred to in paragraph 5 above. In respect of the Specified Representations and such covenants, the liability of a Seller is limited to the amount of the Purchase Price actually received by that Seller. In addition, the Acquisition Agreement provides that the Sellers shall not be liable for losses arising out of breach of representations, warranties or covenants (other than the Specified Representations and breaches of the covenants referred to in paragraph 5 above) unless the aggregate of such losses exceeds US$50,000 (or US$360,000 in the case of the representation regarding the absence of undisclosed liabilities).
The Company has agreed to indemnify and hold harmless the Sellers and their affiliates, and their respective stockholders, members, managers, officers, directors, employees, agents, successors and assigns (together, the “Seller Indemnitees”) from and against all losses arising from any breach of the representations, warranties and covenants given by the Company, which are referred to in paragraphs 4 and 5 above, and any losses incurred by any Seller Indemnitee in connection with any contract between the Company and PVMG (or its subsidiaries).
The representations and warranties referred to above will cease to be of further force and effect on the Second Release Date. The liabilities of the Sellers to the Buyer Indemnitees and the Company to the Seller Indemnitees will fall away at that date, unless notice of a claim has been given to the indemnifying party by the indemnified party prior to the Second Release Date and such claim is pending on the Second Release Date.
7. Governing Law
The Acquisition Agreement is governed by the laws of the State of Delaware.