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Harmonic announced its intention to acquire Thomson Video Networks (“TVN”), a compression solution provider based in France.
The purchase price of the acquisition is $75 million (USD) in cash, plus up to an additional $15 million in post-closing adjustments. The transaction is expected to close in Q1 2016.
For 2014 TVN had sales of 71 million (EUR). At prevailing 2014 exchange rates, this equates to approximately $95 million (USD). Assuming an enterprise value of $90 million ($75 million at closing plus $15 million), the valuation is slightly more than 1x annual sales.
The “Binding Offer” is structured as a put option for TVN’s shareholders. A put option gives the holder the right but not the obligation to sell shares to the option writer (in this instance Harmonic). The “put” option is subject to the selling TVN shareholders’ 60-day consultation process with TVN’s employee works council in France. Should the TVN shareholders execute the “put” option subsequent to the consultation process, then the parties would immediately execute a formal purchase and sale agreement.
Harmonic does maintain the right to terminate the transaction if the company is unable to raise adequate financing for the transaction (more below).
According to Harmonic’s regulatory filing there may be additional post-closing payments based on TVN’s 2015 revenue and TVN’s 2015 backlog that ships during the first half of 2016. A review of the regulatory filing also highlights several closing conditions including the requirement of TVN to reacquire its patent portfolio from France Brevets (a third-party patent licensing firm).
TVN has changed ownership several times in the past five years. TVN was divested by Technicolor in 2011 in a management-led buyout sponsored by Fonds de Consolidation & Développement des Entreprises (FDCE) for a reported price of around $8 million. When Technicolor announced that it had sold TVN to FDCE in 2009, it said that the company had 525 employees and operated in 15 countries, and that its 2009 revenues was €61m.
Institutional investor Edmon de Rothschild Investment Partners then acquired a 49% stake in TVN in December 2014.
In large part to finance the acquisition, Harmonic also announced today its intention to offer $125 million in convertible senior notes due in 2020. At Harmonic’s election, the notes will be convertible into cash, shares of Harmonic’s common stock, or a combination. Management expects to use $70 million of the offering to pay a portion of the costs of the TVN acquisition. Management also intends to use up to $25 million from the offering to repurchase shares of its common stock.
Commenting on the choice of a convertible offering, Harmonic’s CFO Harold Cover highlighted the opportunity to lower the companies cost of capital and maintain an appropriate cash balance for company operations.
Harmonic’s press release announcing the deal and subsequent conference call reiterated in several instances how the acquisition of TVN was an acceleration of Harmonic’s existing video strategy. Harmonic’s CEO Patrick Harshman commented, “The combined product portfolios, R&D teams and global sales and service personnel would allow us to accelerate innovation for our customers while leveraging greater scale to drive operational efficiencies.” A slide from conference call is also included below as a reference on several key points of the intended combination.
Harshman added further emphasis to the regional strength of TVN outside of the US – over 95% of TVN’s revenue profile is outside the US. During the question and answer session, the Harmonic CEO cited a regional allocation of revenue for TVN of 50% EMEA, 25% APAC, and 25% Americas (with the majority coming from Latin America). Management believes this regional profile is highly complementary, as there is less than 50% overlap in the respective company’s customer bases.
Consolidation Continues in Transcoding, Encoding, and Compression
The acquisition of TVN is the latest in a series of M&A transactions in the compression segment. Ahead of the recent IBC Show Amazon announced its acquisition of Elemental Technologies and during the exhibition Ericsson announced its acquisition of Envivio.
Harmonic’s intention to buy Thomson Video Networks is the latest in a series of deals related to video compression, transcoding, and multi-screen video delivery. As broadcasters and media companies scramble to deploy multi-screen services, transcoding is seen by many as a key technology. As a result, transcoding has also attracted its fair share of financing and M&A activity. Here’s a quick run-down of some of the recent transcoding deals and related-financial news:
- In September 2015, Ericsson announced that it was buying Envivio in a $125 million all-cash deal
- In September 2015, Amazon Web Services announced its intent to Acquire Elemental Technologies for an undisclosed amount, but reported by various publications at valuations between $300m and $500m.
- In December 2014, Elemental closed a $15m series D funding round, led by led by Australian telco giant, Telstra, who in August 2014 acquired online video platform provider Ooyala for $360m.
- In September 2014, Telestream announced that its transcoding and workflow revenue increased by 40 percent in 2013 versus 2012
- In April 2014 Ericsson and Elemental Technologies announced that Elemental’s video processing software had been fully integrated with Ericsson’s Virtualized Encoding Solution
- In April 2014, Imagine Communications acquired Digital Rapids for an undisclosed amount
- In April 2014, Dalet acquired Amberfin for an undisclosed amount
- In January 2013, Amazon unveiled its “Amazon Elastic Transcoder.” Based on the company’s Amazon Web Services (AWS) cloud computing platform, the Elastic Transcoder the service provides “a highly scalable, easy to use and a cost-effective way for developers and businesses to transcode video files from their source format into versions that will playback on devices like smartphones, tablets and PCs.”
- In August 2012 Brightcove bought Zencoder, a 2-year old start-up with $2m in revenue for $30m, and subsequently launched a cloud based transcoding service at IBC 2012
- In May 2012, Elemental Technologies closed a $13m fundraising round led by Norwest Venture Partners (NVP), which brought the total amount of funding raised by Elemental to just under $30m.
- In April 2012, audio processing specialist Wohler bought transcoding provider RadiantGrid in a move that the company said will accelerate its move into file-based operations
- In February 2012, Elemental Technologies disclosed that its revenue in 2012 had doubled to $21m thanks to high demand for its transcoding technology
- Envivio had an initial public offering led by Goldman Sachs
- Envivio closed a $16.5m funding round in January 2012, bringing the total raised to $95.1m
- PE firm Thoma Bravo bought out Telestream in December 2011
- Telestream bought fellow transcoding vendor Anystream in September 2011
- Cisco bought Inlet Technologies for $95m in February 2011
- Elemental Technologies closed a $7.5m fundraising round in 2010, bringing the total raised to more than $14m
- RGB Networks bought transcoding vendor Ripcode in 2010