Skip to main content
  • Register
  • Help
  • Contact us
  • Log out of your HL account

Kape announces 'transformational' purchase of Private Internet Access owner LTMI

Tue 19 November 2019 10:29 | A A A

No recommendation

No news or research item is a personal recommendation to deal. Hargreaves Lansdown may not share ShareCast's (powered by Digital Look) views.

(Sharecast News) - Consumer security software provider Kape Technologies announced the proposed acquisition of LTMI Holdings for a total consideration of $95.51m, and an enterprise value of $127.6m on Tuesday.

The AIM-traded firm explained that LTMI is the holding company for Private Internet Access, which it described as a "leading US-based digital privacy company" with a strong position in data privacy services, and more than one million paying customers.

As part of the acquisition, Kape would also acquire LTMI's suite of digital privacy products which it said were at the forefront of the privacy technology space.

Kape explained that PIA was established in 2009, and is a security software business, based in Denver, Colorado, with a focus on the provision of virtual private network (VPN) solutions.

Since its inception, PIA had grown to become a leading VPN service provider focused on the consumer market, and employing around 65 staff, with 35% of them in a research and development capacity.

PIA had more than one million paying subscribers globally, with 48% of them based in the United States.

Kape said the acquisition, which was expected to be immediately earnings enhancing, represented a "significant step-change" in its development, delivering substantial operational and financial benefits.

Those included the doubling of Kape's existing customer base, with the enlarged group servicing more than two million paying subscribers globally, as well as earnings growth, with the enlarged group expected to generate consolidated proforma 2020 revenues of between $120m and $123m and adjusted EBITDA of between $35m and $38m.

It would also bring earnings accretion, with around 90% accretion anticipated in the year ending 31 December 2020, and further cash generation, with LTMI being a "highly cash generative business", generating around $16.3m of adjusted operational cash flow in 2018, with cash conversion of over 100% and expectations of ongoing strong cash generation.

Kape said it was acquiring LTMI from its co-founders and shareholders Andrew Lee and Steve DeProspero for a total consideration of $95.5m, to be satisfied by a combination of $52.9m in cash and the issuance of 42,701,548 new Kape ordinary shares to be paid in three phases.

The first phase would be a payment upon closing of $32.9m in cash and 11,648,059 consideration shares, with a payment a year after closing of $5m in cash and 23,290,117 consideration shares, and a final payment two years after closing of $15m in cash and 7,763,372 consideration shares.

On completion, Kape would also repay LTMI's existing debt of around $32.1m, resulting in a total enterprise value for LTMI of approximately $127.6m.

Kape proposed to fund the cash element of the initial consideration through a $40m short-term debt facility from Unikmind Holdings, its largest shareholder, as well as provide an additional debt facility of $20m, which it did not expect to draw, to satisfy the deferred cash consideration, on similar terms.

"This is a game changing moment in Kape's development and we are thrilled to announce the proposed acquisition of Private Internet Access, a pioneer in the provision of digital privacy," said Kape chief executive officer Ido Erlichman.

"This transaction will be transformational for our business, enabling Kape to aggressively expand our footprint in North America, broaden our product offering, further strengthen our recurring revenue base and gain access to an extremely rich pool of talent."

Erlichman said the transaction would make the company's "vision a reality" by creating "one of the most prominent" privacy companies globally.

"In one acquisition, I believe we have positioned Kape to fast become one of the leading digital privacy service providers in the world, empowering consumers to manage their own data and digital security."

Ted Kim, chief executive of LTMI, added that his firm was "excited" to join forces with Kape, describing the transaction as a "truly monumental milestone" in realising PIA's vision of creating a privacy company with a mission to improve its customers' digital privacy and security worldwide.

"Being part of a publicly listed company enables anyone that values digital privacy and security to be part of our future journey.

"I look forward to working with the Kape team to create one of the leading digital privacy players globally."

At 1547 GMT, shares in Kape Technologies were up 29.87% at 100p.

    The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.

    More company news from ShareCast