Software co Somoto buys Meme Video for $13m

Ben Garrun Photo: PR

The acquisition of the Israeli medsia and digital ad company is Somoto's fourth since 2014.

Israeli software company Somoto Ltd. (TASE: SMTO), which works in Internet marketing, video and mobile advertising, and distribution services for software and apps, is continuing its acquisition campaign. After acquiring video advertising company Terser Tude for NIS 14 million early this year, the company, led by CEO Ben Garrun, today reported an agreement to acquire Meme Video (MV) for $3.5 million in cash and shares when the deal is completed.

Additional payments of up to $9.5 million are contingent on the achievement of targets set over a three-year period, meaning that total payments for the deal could reach $13 million, and if performance exceeds the targets, the payment could be even greater.

MV is active in media and digital advertising. Its business includes effective acquisition of digital video media and adapting it to the needs of the advertiser's target market. The company has developed a system of algorithms for processes many statistical data that makes it possible to adapt video space to specific target markets.

The company's algorithms optimize the price of digital media space, so that Meme Video preserves its profit from buying and selling advertising space.

MV's revenue totaled $9 million in 2015, its gross profit was 25.1% of sales ($2.26 million), and its operating profit was $4.1 million. The company's revenue totaled $6.5 million in the first half of this year, and its gross profit was $1.3 million.

Incidentally, video business is seasonal, with most revenue falling in the fourth quarter of the year. Given certain conditions, completion of the deal is expected by the end of the month.

Somoto has set rather high targets for MV for the additional payments: a cumulative sales three-year sales target of over $100 million, and a cumulative net profit of $12 million.

Garrun said, "The acquisition is another step in implementing Somoto's strategy of obtaining a substantial foothold in the video advertising environment, and puts the company ahead in its plan to diversify its sources of revenue.

"The acquisition comes on top of Somoto's existing video activity, which is already growing rapidly, and makes a significant contribution to the company's revenue and profits. The company has substantial assets, such as advertising business, on all the digital video platforms, including platforms for desktop computers and mobile devices, and special know-how, video advertising optimization technologies, and good relations with customers on the demand side and advertising space providers on the supply side.

"Studies show that the online video advertising market is expected to reach $25 billion in 2017. Mobile advertising in the US is projected to grow five-fold in 2015-2020, and we intend to take part in the market's rapid growth."

The acquisition is Somoto's second this year, and its fourth since 2014, when it acquired Tabatoo and Genieo Innovation. Somoto's revenue jumped 61% in the second quarter, compared with the corresponding quarter last year, and 15%, compared with the first quarter this year, reaching $11.2 million. Operating profit soared 285%, compared with the second quarter of 2014, and 53%, compared with the first quarter, totaling $3.5 million.

Somoto's net profit rose 52% to $2.2 million. At the end of the first quarter, the company had $9.8 million in cash, and its equity was $29 million (NIS 110 million).

Somoto held its IPO in 2013, raising NIS 20 million with an issue of 15% of its share capital at a company value of NIS 135 million, after money. Today, following an 80% rise in its share price in the past year, the company's market cap is NIS 180 million.

The controlling shareholders in Somoto are Garrun, Jacob Tenenboem, Sol Tzvi, and Eyal Yaakov, and the company chairman is former Clal Finance CEO Shuki Abramovich.

Published by Globes [online], Israel business news - www.globes-online.com - on August 18, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Ben Garrun Photo: PR
Ben Garrun Photo: PR
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