The Vitec Group acquired Amimon for $55.0 million in cash consideration. The total investment is anticipated at $59.9 million when including costs associated with employee retention, deal, and integration costs.
Amimon has been a supplier to Vitec Group, and in particular its Teradek subsidiary, since 2012. Amimon provides the chipsets for real-time wireless video transmission used in Teradek’s wireless camera/bonded cellular products. The Amimon relationship extends to supplying wireless video transmissions capabilities to other products in Vitec’s Creative Solutions division.
Vitec is planning to integrate Amimon into its Creative Solutions business, which encompasses the activities of the Offhollywood, Paralinx, SmallHD, VitecEV, and Wooden Camera brands across product offerings for video transmission, monitors, lens control systems, and camera accessories. Creative Solutions’ revenues were £63.2 million in 2017 ($80.2 million USD).
Amimon is headquartered in San Jose, CA, though the majority of its 60 employees are based at its R&D facility Israel. The Israel facility and employees will become an R&D center of the Creative Solutions division.
Amimon had raised approximately $60 million over five rounds of financing since its founding in 2004. The most recent financing was a $15 million round in June 2015. It would appear Amimon has experienced a trying journey in arriving at this acquisition by Vitec. A November 2015 article by Israeli Newspaper Haaretz reviews the successful pivot of Amimon to the professional video market. According to Amimon’s CEO Ram Ofir, in 2012 the Company was one week away from closing and two weeks from running out of money altogether. (The article actually cites a higher figure of $80 million for funds raised and spent).
In the 2017 calendar year, Amimon had revenues of $18.6 million and recorded an operating loss of $0.7 million. For the first three quarters of 2018 (thru September) Amimon had revenues of $13.4 million and EBITDA of $0.8 million. A straight-line extrapolation of 2018 year-to-date financials would annualize to revenues of $17.8 million (a 4.3% decline year-over-year) and EBITDA of $1.1 million. An extrapolation is probably an under-estimate for full year results, since Q4 is likely a seasonally strong quarter.
Using the annualized 2018 figures to calculate transaction multiples translates into a revenue multiple of 3.1x sales and 50x EBITDA. By way of comparison Vitec trades at a revenue multiple of approximately 1.7x sales and 12x EBITDA. The pricing level of Amimon is not justified by the revenue growth and profitability profile disclosed in the acquisition announcement. Rather, as addressed in the announcement, Vitec views the acquisition of Amimon as a strategic investment to capitalize on a growth opportunity in the market.
Strategic Rationale for Buying a Supplier
Vitec is buying a supplier with this M&A transaction. This is vertical integration, and the price does not reflect a distressed situation where Vitec is protecting its business. Rather, as noted above, the pricing reflects a strategic investment by Vitec management.
Investments into wireless capabilities, especially for potential products to serve the markets for Independent and Cinema professionals is a direct alignment with the M&A strategy outlined by Vitec during its Capital Markets Day on September 20, 2018.
Martin Green, Executive Director Group Business Development, cited the below slide when discussing Vitec’s M&A interests at Vitec’s Capital Markets Day. We have added a red outline around the fit of Amimon with the strategy. The green background of Wireless devices denotes it as a ‘Most attractive’ technology. Note that ICC is an acronym for “Independent Content Creators” and Cine for the “Cinema” market segment. Vitec has articulated an expected annual growth of 6% for these markets (ICC + Cine).
Source: Vitec Investor Relations
Returning to the discussion of vertical integration, this is a topic where opinions vary considerably. In the release Vitec argues the vertical integration will allow the combined organizations to better develop “the next generation of highly differentiated wireless video products, enabling us to bring them to market faster.” Some caution is appropriate in criticizing the wisdom of vertical integration. There may be competitive benefits from owning the underlying technology or upcoming product releases (or both) that Vitec cannot discuss publicly.
An immediate consequence of acquiring a supplier is a decrease in the revenue profile of the supplier, since a good amount of a supplier’s revenue is no longer transacted with an outside party. For this reason Vitec expects the revenue profile of Amimon to reduce significantly once integrated.
At the same time, vertical integration brings immediate and meaningful cost synergies because the gross profit of the supplier’s sales (to the acquirer) are absorbed into the new parent. This will lower the Creative Solutions business’ cost of goods. The Haaretz article referenced above indicated a gross profit level of 75% for Amimon.
The acquisition has not changed Vitec’s expectations for the 2018 calendar results. Guidance remains material EPS growth combined with good cash generation. Vitec did indicate the financial impact of Amimon will increase Creative Solutions EBITDA by $4.0 million in 2019, $7.5 million in 2020, and $9.0 million in 2021.
If we take EBITDA to represent investment return and use the $59.9 figure as total investment, then we can cast the EBITDA contribution as investment returns of 6.6% in 2019, 12.5% in 2020, and 15.0% in 2021. This methodology approximates the approach Vitec referenced during its Capital Markets day to highlight its M&A track record. The results disclosed by Vitec indicated the twelve acquisitions made since 2012 required an investment of £90 million and in 2018 delivered a return of 20% (profit before tax).
Returning to the stated rationale, Vitec’s Group Chief Executive Stephen Bird issued the following statement in the release, “Amimon is the technology of choice for wireless equipment used in the cine market. This acquisition opens up the exciting opportunity for Vitec to drive growth by taking wireless technology into adjacent markets, developing innovative new products to give our customers greater flexibility in image capture and content creation.”
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