IABM Market Intelligence Blog - M & A Activity continues apace - Amino Technologies to acquire Entone Inc.

IABM Market Intelligence Blog - M & A Activity continues apace - Amino Technologies to acquire Entone Inc. 05 August 2015

IABM Market Intelligence Blog - M & A Activity continues apace - Amino Technologies to acquire Entone Inc.

Brief Overview of the Agreement

Amino Technologies Plc, the British provider of digital entertainment solutions for IPTV and Internet TV, has announced the proposed acquisition of Entone Inc. for $73.0 million. Entone Inc. is a provider of broadcast hybrid TV and connected home solutions. This move follows the previous acquisition of Booxmedia earlier this year. The total consideration of $73.0 million is made up of a deferred consideration of $8.0 million, payable in two separate tranches, and an initial consideration of $65.0 million (£46.7 million), which will be funded as follows:

£21.0 million through the Placing of Shares which the acquisition is conditional upon

£17.3 million through the use of Amino's current cash resources

£5.1 million through a Revolving Credit Facility.

Motivations of the Deal

In an interesting part of the announcement, Amino's senior executives outline some of the main reasons behind this acquisition. Important drivers of the agreement are the stronger geographical presence in the US, anticipated cost synergies and the incorporation of a direct competitor. Entone has reported exceptionally lucrative financial statements in recent years, as shown by the figures below which cover the period June 2013 May 2015.

Financial Highlights of Entone Inc., June 2013 - May 2015

Revenues have increased by 60% between June 2013 and May 2015 while operating margin has more than doubled. These are undoubtedly signs of a high-growth business. Below, the most recent financial highlights of Amino, covering the six months ending in May 2015.

Financial highlights of Amino Technologies plc, six months ending May 2015 compared to 2014

Revenues have increased in the last six months ending in May 2015 compared to the same period last year, operating profit has more than doubled. According to the latest financials, this deal involves the union of two successful businesses. However, limiting the analysis to this would be short-sighted. Strategically, the acquisition of Entone represents a further footprint in the IP-driven and Cloud-based Delivery segment, which will further reinforce Amino's product portfolio in this area after the acquisition of Booxmedia. In fact, Booxmedia's offering focuses on SaaS Cloud TV platform to facilitate its customers to provide OTT services. The two acquisitions are arguably correlated and signal the move of the broadcast technology market to multiscreen delivery. This has been duly noted by the CEO of Amino, Donald McGarva, who has declared:

The proposed acquisition of Entone has the potential to transform our business and broaden our capabilities and market reach globally across IPTV, hybrid broadcast and a range of connected home solutions. It also aligns closely with our recent acquisition of cloudTV platform provider Booxmedia, in enabling us to meet the evolving needs of customers across a range of markets as they transition to cloudbased IPdriven multiscreen entertainment delivery. We anticipate a number of synergies between the two companies and expect the proposed acquisition to be earnings enhancing in the first full year of combined operations."

Contextualisation of the Deal

This deal is formalised in the midst of an M&A wave characterising the broadcast and media technology industry as well as wider sectors. A recent report commissioned by ReedSmith and produced by Mergermarket highlights how the technology, media and entertainment sector has consolidated over the last years. This report is based on a survey of 100 corporate senior executives belonging to the aforementioned sector. The consolidation is strikingly illustrated by the figure below which shows how both the value and volume of M&A in this industry have soared from 2012 to 2014.

M&A deals in the technology, media and enterntainment sector, 2012-2014 (Source: Wired up: The convergence of technology, media and enterntainment" by ReedSmith and Mergermarket)

The sector analysed in this report, albeit wider, shares more than relevant similarities with the broadcast and media technology industry. Broadcasters and media companies are included in the sample studied, which is of particular importance given that trends on the demand side are often replicated on the supply side. After all, if the demand side of the market is changing, and it is, the supply side needs adapting, sooner or later. This M&A wave can thus be regarded as a result of the turmoil affecting the demand side which is shaking up the supply side as well. As pointed out in the case of Amino, a shift in viewing habits (the move to multi-screen delivery) has first struck the demand side and then had repercussions on the corresponding supply of technological products and services.

What are the other reasons behind M&A activity? Some analysts blame buoyant debt markets, which are responsible of making M&A more feasible and attractive. Arguably, this is not the only driver of increased M&A activity. As shown by the specific case of Amino, which has resorted to credit to fund just 11% of the initial consideration, entering new geographies and widening product offerings are stronger drivers of M&A, especially in sectors like broadcast and media technology. These strategies contribute to offset the risk of not keeping up with the emerging technologies by boosting up sales through a more extensive geographical reach and a more complete portfolio.

The figure below is another excerpt from the ReedSmith report which demonstrates how the aforementioned motives are consistent with the responses to the question What does your next acquisition seek to accomplish? in the surve

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