Pixel Interactive Media Ltd (AIM: PIXL), Asia’s leading online advertising sales network, is pleased to announce it has agreed to acquire Chinese online affiliate marketing business Easy Growth Limited (“Easy Growth”) (the “Acquisition”). The total maximum consideration payable is US$10 million and is conditional on a number of stringent financial performance targets being met.
The acquisition will result in Pixel owning 100% of Easy Growth which, upon closing, will through its wholly foreign owned subsidiary in China derive substantially all the economic benefits of the business operations of Share Freedom Wireless Co. Ltd (“Freedom”).
Acquisition highlights:
- Agreement to acquire Easy Growth, a service and technology provider to Freedom
- Provides exposure to the fast growing Chinese online advertising and marketing industry and access to Easy Growth’s strong customer base
- Acquisition will be immediately earnings enhancing for the Group
- Adds industry renowned affiliate marketing business model to Pixel’s current service offering
- Acquisition enables cross-selling of products across Asian markets and clientsThe total consideration will be calculated at up to five times Easy Growth’s profit after tax for the year to 31 December 2007
Kevin Huang, CEO of Pixel, commenting on the agreement said: “We are very pleased with the acquisition of Easy Growth. It strengthens Pixel’s offering and complements our current strategy of providing online advertising through our network, of publishers by now offering online affiliate advertising, a successful model which is recognised internationally.
This acquisition enables Pixel to expand into the Chinese market with the combined offering of a wider service mix of both branded display and affiliate advertising models, with the opportunity to cross sell these services to new and existing clients. We look forward to seamlessly incorporating Easy Growth into the business and developing Pixel further in line with the business strategy.”
Easy Growth is the exclusive service and technology provider of Freedom based in Beijing, China and is a leading online advertising business focused on affiliate marketing with a strong telecoms and mobile customer base including, Rock Mobile and Link Rich Telecommunications amongst others.
Freedom currently employs 16 employees and has a comprehensive affiliate network, with currently over 1400 publishers registered with its affiliate network throughout China. The acquisition will enable Pixel to benefit from entry into the growing Chinese online advertising market, currently estimated to be worth over US$1.2 billion in 2007 and maintain more than 30 percent annual growth for the next eight years, whilst providing cross selling opportunities for Pixel’s inherited and existing clients.
This acquisition will also include the technology platform that Easy Growth uses to operate its affiliate ad network. This technology will be particularly useful to Pixel as it continues to expand its product base and geographical reach.
For the 10 months ended 31 October 2006, Freedom’s audited accounts reported turnover of US$1.00 million, a net profit after tax of approximately US$0.28 million and at 31 October 2006 had net assets of US$1.51 million.
The total consideration payable is calculated at up to five times Easy Growth’s consolidated profit after tax for the year to 31 December 2007. Pixel has agreed to pay initial cash consideration of approximately US$1.9 million. This will be payable in stages during 2007 subject to quarterly performance milestones. The remaining consideration will be paid based on performance for the year ended 31 December 2007 and will be satisfied up to 30 per cent in cash and at least 70 per cent in new ordinary shares. The number of new ordinary shares to be issued by Pixel will be calculated at the higher of 61 pence and the 30-day average trading close prices of Pixel’s ordinary shares preceding the date of issue.
The deal is subject to Easy Growth satisfying various technical conditions as set out in the sale and purchase agreement and the directors expect completion to happen by June 2007.
Netrove Strategic Corporation (“Netrove”) advised the Group in relation to the Acquisition under a financial advisory agreement. Mr Teh Kim Seng, a non-executive director of Pixel, is also a major shareholder of Netrove and as such the agreement is regarded as a related party transaction by the AIM Rules for Companies. Under the terms of the agreement, Netrove is to provide the Group exclusively with corporate and financial advisory services in Asia for a minimum period of 12 months and the Group has agreed to pay Netrove fees, in cash, on a deal by deal basis, with the majority of the fees payable on a success basis. The maximum fees payable to Netrove are $225,000 and are payable in various tranches over the next 12 months linked to the consideration payments.
In accordance, with Rule 13 of the AIM Rules for Companies, the directors consider, having consulted with Dawnay, Day Corporate Finance Limited, being the Group’s nominated adviser, the terms of the agreement to be fair and reasonable insofar as its shareholders are concerned.
