Following protracted talks, including the postponement and cancellation of a previous deal, Israeli businessman Zvi Barenboim is acquiring the app distribution activity of software technology company Somoto (TASE: SMTO) for $10 million. The price could rise to as much as $34.3 million, depending on future performance. Barenboim will reportedly pay Somoto $10 million when the deal is completed, plus $240,000 for the company's profits in December 2019. Completion of the deal is expected by the end of March 2020.
For three years starting at the beginning of 2020, Somoto will be a partner in the results of the activity being sold, and will be entitled to additional amounts depending on the company's results. Somoto will also be entitled to a minimum of $5 million if EBITDA exceeds $12 million at the end of three years, and to $11 million more if the activity being sold meets certain conditions (over $40 million in EBITDA during three years). Completion of the deal is contingent on approval by Somoto's shareholders' meeting.
Somoto also announced that it would continue to hold its audio and video activity. When the deal is completed, the company's board of directors will present a strategic plan for its new fields of activity, its stock of cash, and the activities that it is retaining. It will also announce distribution of a dividend. Following the completion of the deal, Somoto will have $29.5 million in cash, excluding contingent payments under the deal.
Share price jumps 15%
Somoto deals in online marketing, video and mobile advertising, and software and app distribution services. The company's share price responded to the report with a 15% jump on the Tel Aviv Stock Exchange today, but is still down 17% over the past year, bringing its market cap down to NIS 115 million.
In April 2019, Barenboim agreed to acquire all of the company's activity for up to $50 million. Six weeks after the deal with Barenboim was signed, Somoto announced that it had noticed that the anti-virus program in Microsoft's Windown operating systems was deleting Somoto's software from PCs. The announced lowered the acquisition price to $47 million, and the entire deal was called off in December 2019. Barenboim and Somoto nevertheless stated that they were examining other options for a deal between them.
Somoto was unable to solve the malfunction, and last month reported that its revenue had totaled $41 million in 2019, 24% less than in 2018. The company's revenue totaled $7.3-7.7 million in the fourth quarter of 2019, while its EBITDA was $1.6 million, 27% less than in the third quarter of last year.
Somoto, led by CEO Assi Itshayek, is a company with no controlling core. Its shareholders include former CEO Ben Garrun, Yaakov Tenenboim, and Sol Tzvi, and its chairperson is Yehoshua (Shuky) Abramovich. Barenboim is one of the most liquid businesspeople in Israel, with a record of many successful investments. He has invested mostly in private medicine and technology in recent years, and holds shares in Somoto, which he received in August 2014, when the company merged Internet company Genieo Innovation, previously held by Barenboim, into itself.
Published by Globes, Israel business news - en.globes.co.il - on February 19, 2020
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