RTHM.L Regulatory News (RTHM)

BLINKX PLC ACQUIRES RHYTHM NEWMEDIA INC.

Leading Premium Mobile Video Advertising and Technology Platform Enables blinkx

to Expand into and Accelerate the Growth of its Mobile Business

London, England and San Francisco, CA - 3 December 2013 - blinkx plc ("blinkx" or the "Company"), the Internet Media platform that connects audiences with brands through professionally generated content, announces that it has today entered into an agreement (the "Acquisition Agreement") to acquire Rhythm NewMedia Inc. ("Rhythm"), a leading premium mobile video advertising technology platform focused exclusively on smartphones and tablets, for a total consideration of US$65.0 million (£39.7 million) (the "Acquisition"). The cash component of the Acquisition consideration of c.US$29.5 million (£18.0 million) will be funded through the Company's cash balances and proceeds from the placing (the "Placing") announced separately today, with the remainder through the issue of new ordinary shares of the Company.

Highlights

Rhythm operates a mobile equivalent of the blinkx ecosystem and enables the Company to extend its reach across platforms. The Company expects that the acquisition will:

· Accelerate the growth of its mobile video advertising business, the fastest growing segment within online advertising which is expected to grow by over 7 times to $31billion from 2012 to 20171;

· Allow it to satisfy growing brand advertiser demand for premium, integrated, cross-platform online and mobile video advertising campaigns at scale;

· Add patented mobile technologies and products to augment its existing desktop capabilities;

· Enhance and upgrade relationships with premium media companies to extend the blinkx ecosystem; and

· Add a talented team, with extensive expertise in mobile video advertising.

Key Financials

Rhythm has a strong and compelling growth profile, with demonstrated scale, scope and reach in the premium mobile advertising sector:

· Revenue CAGR of over 90% between FY2011 and FY2014(E);

· FY2014(E) revenues of US$25.4 million (£15.5 million) 2, that are expected to grow at 30% annually over the next 24 months based on current visibility;

· FY2014(E) EBITDA loss of US$4.6 million (£2.8 million) - of which c.US$1.0 million (£0.6 million) is likely to impact blinkx pre-exceptional EBITDA performance in FY2014 - with breakeven anticipated within the first full year under blinkx ownership, with material profit contribution to the group thereafter;

· Industry leading gross margins that are comfortably above 40%; and

· Targeted cost savings of c.US$2.0 million (£1.2 million) over the next 12 months through headcount and infrastructure alignment.

1 eMarketer

2 Excluding one-time non-core, high risk and/or low margin revenues.

blinkx Current Trading

On 5 November 2013 the Company published its interim results for the six months ended 30 September 2013. The Company confirms that there has been no material change to the operational and financial performance or outlook for the business since that date.

Commenting on the Acquisition, S. Brian Mukherjee, CEO of blinkx, said:

"We are delighted to welcome Rhythm, a leading premium mobile video advertising company, to blinkx. In Rhythm, we see a perfect strategic alignment with our vision to connect consumers with brands through professionally generated content, across any Internet connected device, anywhere in the world. This acquisition aligns with our strategy to expand our digital video expertise to the mobile sector at scale. Rhythm brings a talented team with deep domain expertise, technology and products, along with a rapidly growing revenue stream that will add to our organic mobile efforts."

Commenting on the Acquisition, Ujjal Kohli, CEO of Rhythm, said:

"Rhythm and blinkx possess a joint competency in delivering turnkey, dynamic and creative online advertising solutions, backed by industry leading technology. This is a transaction between two highly compatible companies that will bring unparalleled depth and breadth to the evolving digital video advertising space. We are thrilled to join the blinkx team and help build on its established digital video search, discovery, distribution and monetisation foundation."

Rhythm Overview

Founded in 2005, Rhythm is a leading, premium mobile video advertising technology company, focused exclusively on smartphones and tablets. The company connects brand advertisers with highly engaged mobile audiences by selling and serving video, rich media and other advertising formats. Rhythm has worked hard to build a strong reputation in the marketplace:

· Rhythm has partnered with more than 50 premium media companies across a portfolio of 200+ properties. The company's core expertise lies in the delivery of impactful brand advertising campaigns against high quality content to relevant and targeted audiences;

· In 2012 alone, more than 200 top brand advertisers ran campaigns with Rhythm; and

· A team of seasoned executives leads Rhythm, with long tenures and diverse expertise in the mobile video technology and advertising industry.

blinkx expects to benefit from the strategic addition of Rhythm's senior leadership in key areas across its business. Specifically, Rhythm CEO, Ujjal Kohli, and Rhythm Chief Revenue Officer, Paul Bremer, will continue in senior leadership roles within the joint blinkx/Rhythm enterprise.

Rhythm's revenue for their financial year ending 31 December 2012 was c.US$19.0 million, including a loss from operations of c.US$7.4 million. As at the half year ending 30 June 2013 the Company had Gross Assets of US$13.3 million3.

Rhythm is expected to generate revenues of c.US$25.4 million (£15.5 million)4 for the year to 31 March 2014 and to grow at 30% annually over the following 24 months. Gross margins for this period are expected to be c.44% with an EBITDA loss of c.US$4.6 million (£2.8 million) of which c.US$1.0 million (£0.6 million) is likely to impact blinkx pre-exceptional EBITDA performance in FY2014. The Company also expects to incur exceptional charges related to the incentivisation and retention payments referred to below.

Working together, Rhythm and blinkx have developed an integration plan for the Acquisition, covering the product, sales, business development, operations, technology, finance, marketing and human resources functions. The Company expects to complete front-end integration within six months and back-end integration within 12-18 months of closing the acquisition.

Through revenue and cost synergies the Company expects Rhythm to break even on an EBITDA basis within the first full year under blinkx ownership.

3 Unaudited.

4 Excluding one-time non-core, high risk and/or low margin revenues.

Acquisition Summary

The total consideration of US$65.0 million (£39.7 million) will consist of c.US$29.5 million (£18.0 million) in cash and the issue of 10,404,253 new ordinary blinkx shares ("Consideration Shares"), which equates to c.US$35.5 million (£21.7 million)5.

The initial consideration for the Acquisition will be US$27.3 million (£16.7 million) of cash and the issue of 8,719,064 new ordinary shares of the Company, of which 8,410,735 new ordinary shares to certain of the sellers will be subject to a 90 day lock up and a subsequent orderly market agreement.

Of the total consideration, c.US$10.0 million (£6.1 million) has been allocated for employees and management as incentive and retention payments, payable over the course of twelve months following closing.

The balance of the cash consideration will be held back and used in part to fund an escrow agreement to provide for any claims that the Company may have under the Acquisition Agreement. The issue of the balance of the Consideration Shares will be deferred for up to two years from the date that the Acquisition Agreement closes, again to provide for any claim that the Company may have under the Acquisition Agreement.

The Acquisition Agreement contains certain typical closing conditions. These conditions include:

· Obtaining the consent of the stockholders of Rhythm;

· Obtaining of all necessary governmental approvals;

· Obtaining third party consents as set out in the Acquisition Agreement;

· Confirming that all representations and warranties are true and accurate in all material respects at closing;

· Confirming that there is no material adverse effect on Rhythm after the date of the Acquisition Agreement;

· Repayment and distribution of funds to all appropriate stakeholders; and

· Admission of the 8,719,064 initial Consideration Shares to trading on AIM, which is anticipated to occur on 10 December 2013.

The Company is confident that these conditions will be met.

5 Based on the average share price for the 10 trading days previous to and including 27 November 2013.

Acquisition Strategy and Pipeline

The Acquisition follows and complements the recent Grab Media transaction that blinkx concluded in August 2013. Grab Media extended blinkx's base of audience, publisher and advertiser relationships, to accelerate the deployment of blinkx VideoAdvantage. There are a number of additional acquisition opportunities that the Company continues to evaluate, with a particular focus on the programmatic ecosystem and value chain within the mobile and video advertising ecosystem. This pipeline, together with organic growth initiatives, is expected to enable the Company to grow into adjacent and complementary areas as it extends its footprint to provide a complete solution for its media partners across the mobile, video and desktop landscape.

Analyst and Investor call

A conference call will be held on 03 December 2013, at 17.15pm GMT; 12.15pm EST; 9.15am PST:

Conference ID # 19494632

For further information please contact:

About blinkx

Founded in 2004, blinkx (LSE AIM: BLNX) is an Internet media platform that connects digital consumers with advertisers through professionally generated content. blinkx pioneered Internet video search using its patented COncept Recognition Engine (CORE) technology that leverages speech, text and image analysis to deeply understand the content and context of videos. This results in improved search relevancy for consumers and a brand safe environment for advertisers. With a rapidly growing index of millions of hours of searchable video derived from over 1,100 media partnerships, blinkx powers video search on leading online properties including AOL and Lycos. blinkx continues to develop innovative approaches to distribute and monetize digital video content across personal computers, smartphones, tablets and connected TV through partnerships with leading brands such as Samsung, Sony and Roku. blinkx is headquartered in San Francisco, California with offices worldwide. For more information please visit www.blinkx.com. 

About Rhythm

Rhythm is a leading premium mobile video advertising technology company, focused exclusively on smartphones and tablets. The company connects brand advertisers with highly engaged mobile audiences by selling and serving video, rich media and other immersive advertising formats. The company's core expertise lies in the delivery of impactful brand advertising campaigns against high quality content for targeted, relevant audiences. Rhythm has partnered with more than 50 premium media companies, across a portfolio of 200+ properties. For more information please visit www.rhythmnewmedia.com.

Important Information

This announcement has been issued by and is the sole responsibility of the Company. This announcement is for information only and does not constitute an offer or invitation to underwrite, subscribe for or otherwise acquire or dispose of any securities or investment advice in any jurisdiction in which such an offer or solicitation is unlawful, including without limitation, the United States, Australia, Canada, South Africa or Japan. Any failure to comply with these restrictions may constitute a violation of the securities laws of such jurisdictions.

This announcement and the information contained herein is not an offer of securities for sale in the United States. The securities discussed herein have not been and will not be registered under the US Securities Act of 1933, as amended (the "US Securities Act") and may not be offered or sold in the United States absent registration or an exemption from registration under the US Securities Act. The information contained herein does not constitute an offering of securities for sale in the United States, Canada, Australia, Japan, South Africa or any jurisdiction in which the same would be unlawful. No money, securities or other consideration is being solicited and, if sent in response to the information herein, will not be accepted. There will be no public offer of securities in the United States, the United Kingdom or elsewhere.

Citigroup Global Markets Limited ("Citi") which is authorised by the Prudential Regulation Authority and regulated in the United Kingdom by the Financial Conduct Authority and the Prudential Regulation Authority, and Numis Securities Limited ("Numis"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, are acting for the Company in connection with the Placing and no-one else and they will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients nor for providing advice in relation to the Placing. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Citi or Numis or by any of their respective affiliates or agents as to or in relation to, the accuracy, completeness or sufficiency of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers in connection with the Company, the Placing Shares or the Placing and any liability therefore is expressly disclaimed.

Certain statements in this announcement are forward-looking statements which are based on the Company's expectations, intentions and projections regarding its future performance, anticipated events or trends and other matters that are not historical facts. These forward-looking statements, which may use words such as "aim", "anticipates", "believe", "intend", "estimate", "expect" and words of similar meaning, include all matters that are not historical facts. These forward-looking statements involve risks, and uncertainties that could cause the actual results of operations, financial condition, liquidity, dividend policy and the development of the industry in which the Company's business operates to differ materially from the impression created by the forward-looking statements. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of such statements and, except as required by the FCA, the London Stock Exchange or applicable law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

No statement in this announcement is intended to be a profit forecast and no statement in this announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company. The price of shares and the income from them may go down as well as up and investors may not get back the full amount invested on disposal of shares.

Neither the content of the Company's website (or any other website) nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

Exchange Rates

US$ amounts in this announcement have been converted into £ Sterling at an exchange rate of US$1.6365 = £1, the rate prevailing at close of business in London (5pm GMT) on 2 December 2013, the latest practicable time and date prior to this announcement.6

6 Bloomberg.