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Kit Digital Goes After Big Media Customers With Ioko Buy

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Kit Digital (s KITD) just added another piece to its global IP video distribution platform, with the acquisition of end-to-end systems integrator ioko for approximately $80 million. While Kit has spent the last few years on a shopping spree with seemingly no signs of slowing down, the addition of ioko may be the final piece it needs to go after the big, Tier 1 service providers and media companies offering online video services.

Kit Digital will pay approximately $91.4 million upfront for ioko, including $74 million in cash and approximately 1.5 million restricted shares of Kit common stock (valued at $11.51 at the close of business on April 8). But since ioko has about $19 million in cash on hand and Kit expects $9 million in additional positive net working capital on ioko’s balance sheet when the deal closes, the actual price will be closer to $63.4 million on a debt-free and cash-free basis. With another $16 million in potential performance-based earnouts, the acquisition will cost no more than $79.4 million in total, Kit Digital claims.

But what does Kit get in return? A huge stable of high-profile over-the-top video customers — and approximately $54 million in annualized revenues from a combination of recurring managed service fees, software licenses, maintenance fees and professional services.

Kit Digital has been working to finalize the purchase of ioko for some time, alluding to an upcoming “transformative” acquisition it would close over the last several months, even as it snapped up smaller players. While announcing its acquisitions of Kickapps, Kyte and Kewego, for instance, the company made sure to point out that it had about $100 million in cash on hand that it planned to use for one large strategic purchase.

Despite what seems like a never-ending shopping spree for Kit Digital, the ioko deal will likely to be the last major acquisition that it will make for a while. That’s because the folks at Kit Digital finally believe they have all the technology and expertise to fully serve large, Tier 1 broadcasters and service providers as those companies seek to migrate more of their video businesses online.

While Kit Digital has pieced together a distribution platform that includes nearly everything required to manage, distribute and monetize videos delivered over-the-top, ioko has operated mostly as an end-to-end systems integrator for large media companies and network operators. EVP of Global Marketing Gannon Hall told us in a phone interview that ioko’s expertise in delivering very customized solutions for large companies will help Kit Digital address an increasingly important — and profitable — group of potential customers. At the same time, adding Kit Digital’s distribution platform will enable the combined firm to combine integrations expertise with a solid technology platform.

“To really play in the Tier 1 world, you need great technology plus value added services,” Hall said.

ioko’s ability to serve large companies is underscored by an impressive roster of high-profile customers that have turned to it to help deploy complicated, multiscreen IP video services, including services like AT&T U-verse, (s T) BSkyB SkyPlayer, BBC iPlayer, Univision’s Digital Media Platform, as well as Disney (s DIS) and Sony’s (s SNE) FilmFlex pay-per-view movie portal.

Several of ioko’s senior executives will be joining the Kit Digital team, including joint global CEO Mark Christie, CEO of North America Scott Sahadi, CFO Allan Dunn and chief sales & marketing officer John Griffin. Kit Digital will also add more than 350 employees and offices in San Diego, London, Sydney, York in the U.K. and Malaga, Spain. Kit Digital will reorganize its geographic management structure with New York as headquarters of the Americas, London as EMEA headquarters and Beijing serving as headquarters for Asia-Pac.

Although there might be an opportunity to pick up a piece of technology here or there, Hall says not to expect Kit Digital to continue making huge purchases: “This signals the shift away from optimizing revenues through consolidation and more toward organic growth,” Hall said.