Australian-headquartered Access Innovation Holdings Limited (Ai-Media) (ASX: AIM), a provider of technology-driven live and recorded captioning, transcription and translation services, has entered into a binding agreement to acquire 100 per cent of the shares in EEG Enterprises, Inc. (EEG) for up to US$34.0 million in cash, Ai-Media shares and potential earn-outs (Acquisition).
The acquisition of EEG, a leading North American provider of captioning technology, will establish Ai-Media as a vertically integrated provider of captioning technology, with a full suite of products to match customer requirements. The acquisition will be immediately earnings accretive on an EBITDA basis, while significantly increasing recurring revenue streams and delivering Ai-Media new growth opportunities, particularly in the crucial North American market.
The Acquisition consideration is structured as follows:
- an initial cash payment of US$20.0 million on completion;
- US$10.0 million in Ai-Media shares, pending shareholder approval at an Extraordinary General Meeting to be held in June 2021; and
- an earn-out payment of up to US$4.0 million subject to EEG achieving revenue and margin growth rate hurdles, payable in cash following the release of Ai-Media’s FY22 financial results.
The Acquisition will be fully funded by an equity raising of A$40.0 million, comprising an underwritten institutional placement of A$20.0 million and an underwritten accelerated renounceable entitlement offer (without retail rights trading) of A$20.0 million at a ratio of 1 new share for every 5.79 existing shares held by eligible shareholders on the record date (Equity Raising). The Equity Raising will be conducted at an offer price of A$0.80 per share, which represents a 14 per cent discount to Ai-Media’s last closing price and a 10.8 per cent discount to the Theoretical Ex-Rights Price2 (“TERP”).
Theoretical ex-rights price (“TERP”) includes shares issued under the Placement, Institutional Entitlement Offer and Retail Entitlement Offer. TERP is a theoretical calculation only and the actual price at which Ai-Media shares trade immediately following the ex-date for the Entitlement Offer may be different from TERP. TERP has been calculated as: (existing market capitalisation of Ai-Media plus additional equity raised) / total shares on issue following the Equity Raising.
At 27 April 2021, Ai-Media’s last closing price was A$0.93 per share and the TERP is A$0.90 per share.
It is anticipated that the Equity Raising will be completed by 27 May 2021. The Acquisition will complete at the time that Ai-Media pays the cash consideration of US$20.0 million to the EEG vendor (which it has 45 business days from the date of the Acquisition agreement to do). Ai-Media intends to pay the cash consideration and complete the Acquisition immediately on receipt of funds from the Institutional Entitlement Offer and Placement.
Ai-Media Co-founder and Chief Executive Officer Tony Abrahams said the acquisition of EEG represented a step change for Ai-Media, significantly strengthening its technology portfolio and opening up growth opportunities in new markets.
“Over four decades, EEG has established itself as the market-leading provider of video and captioning services in North America, serving major enterprise, government, defence and broadcast media clients. EEG’s on-premises and cloud-based technology perfectly rounds out Ai-Media’s live captioning product suite, complementing our premium human-curated service and our recently launched Smart ASR product to enable us to meet any customer requirement. We’re delighted to welcome Phil and the entire EEG team to Ai-Media and look forward to working with them to take advantage of the growth opportunities presented by the alignment of two businesses with highly complementary products and customers and a culture of success.”
EEG Chief Executive Officer Phil McLaughlin said: “Working with Ai-Media over the past five years, we have come to recognise our shared values in terms of developing proprietary technology and delivering the best products, services and support for customers. EEG and Ai-Media’s technology suites are entirely complementary, allowing us to meet the full range of customer requirements. We’re excited about the growth potential of the combined business and look forward to being part of this next chapter in our company’s history.”
Established to serve the television broadcast industry in 1981, EEG is today a market-leading US-based video technology company with a focus on cloud-based workflow products for closed captioning, accessibility and data processing applications.
EEG’s software and equipment support transcription applications in broadcasting, video post-production, streaming media, stadiums, government and education. It has 660 active customers, more than double its level in 2016, across the following three key cohorts: enterprise, including five of the top 10 largest companies by market capitalisation on the NASDAQ; government and defence, including US State and Federal bodies and defence organisations; and broadcast and media, including major US and global media companies.
EEG derives its revenue from customer subscriptions, infrastructure sales and rentals, with more than half generated through recurring SaaS and IaaS streams. It has three principal product categories:
- Lexi: EEG’s flagship SaaS product is a cloud-hosted and on-premises automatic speech recognition (ASR) and captioning platform that delivers more than 90 per cent accuracy in English and Spanish based on a self-learning algorithmic structure;
- Falcon, iCap Alta: Cloud-hosted infrastructure (IaaS) that provides video caption encoding for live broadcast and live enterprise applications; and
- iCap Local, iCap Encoder: On-premises video caption encoding for live broadcast and live entertainment applications, delivered via outright purchase or rental agreements.
For FY21, EEG is expected to deliver pro forma revenue4 of $US8.9 million and EBITDA of $US3.3 million.
With a relationship established over the past five years, EEG and Ai-Media share a strong cultural alignment with a focus on high-quality customer service and proprietary technology.
EEG’s ASR technology, which uses self-learning algorithms to provide captioning with significantly greater accuracy and confidence than off-the-shelf ASR products, will complement Ai-Media’s existing technologies, and has been developed in-house over the past two decades.
Ai-Media’s tiered live captioning services will range from its premium human-curated service, which offers world-leading levels of accuracy, its new Smart ASR product, which combines artificial intelligence and machine learning automation with a final layer of human-curated session-specific custom ASR dictionaries, to EEG’s fully automated products.
Ai-Media believes the Acquisition opens up significant opportunities to up-sell and cross-sell products and services to a wider customer group, in particular in the North American market, where EEG generates 95 per cent of its revenue and where Ai-Media is delivering strong growth through acquisitions and major customer wins.
EEG represents Ai-Media’s fourth acquisition of a US-based entity in the past 12 months, following the successful integration of ACS in calendar year 2020 and the acquisition in January 2021 of Caption IT and CaptionAccess.
Following completion of the Acquisition and Equity Raising, it is anticipated that the combined entity will be immediately EBITDA positive and will have A$8.9 million of cash available, providing balance sheet flexibility and scope to fund future growth initiatives.
Excluding the impact of the Acquisition and Equity Raising, Ai-Media reaffirms its FY21 prospectus forecast, including Services revenue of A$43.8 million, gross profit of A$18.1 million and pro forma EBITDA loss of (A$4.8 million). The completion of the acquisitions of Caption IT and CaptionAccess provides upside to this forecast, with revenue of US$1.1 million expected from these businesses in the second half of FY21.
Ai-Media achieved EBITDA break even in the month of March. On a pro forma basis, the combined entity, including EEG, is forecast to deliver FY21 revenues of approximately A$57 million and a normalised EBITDA loss of approximately (A$0.2 million).
Under the terms of Acquisition, Ai-Media will issue to the vendors approximately 14.6 million shares at an effective issue price of A$0.876 per share (Consideration Shares), subject to shareholder approval at an Extraordinary General Meeting to be held in mid-June 2021. The Consideration Shares will be subject to voluntary escrow, with one third to be released on every anniversary of the issue date.