Israeli cyber company Kape, controlled by Teddy Sagi Group, acquires American LTMI, which owns Private Internet Access (PIA), for a total transaction value of $ 127.6 million. The payment is divided between payment of $95.5 million, of which $52.5 million in cash and the balance in shares. Kape will also repay $32.1 million in LTMI debt.
LTMI’s main asset is Private Internet Access, which specializes in encrypting digital information and providing anonymous browsing solutions. The other LTMI assets that Kape will purchase at the same time are private networking solutions that are industry-leading. Private Internet Access alone has 65 employees, about a third of whom are R&D personnel.
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Following the acquisition, the Israeli company expects to double its number of customers to more than two million paying customers in the SaaS model. Increasing Kape’s revenue and EBITDA, consolidated revenue forecasts for 2020 are between $120-123 million, and EBITDA forecasts between $35-38 million during the period. Realizing annual synergies of between $3-4 million, mainly in server infrastructure and additional operating costs.
Established in 2009 and operating in the state of Colorado, LTMI is a virtual private network (VPN) company that specializes in providing secure and encrypted Internet access. In addition to the web anonymity solution, the company’s product portfolio includes a private browser for iOS and Android users, and its support, Internet browsing speed as well as secure file storage and a search engine that ensures privacy and is based on a first-of-its-kind cryptographic system.
Given its size, the acquisition of LTMI represents a significant leap for Kape and will significantly accelerate the cash flow from operating activities. LTMI is a growing and profitable company: its revenue in 2018 was $ 47.4 million (up 18% year-over-year), and adjusted EBITDA was $14.7 million.
The purchase will be funded by Kape from its cash funds and debt from its controlling shareholder, Teddy Sagi, which will provide her with a $40 million owner’s loan. After the acquisition is complete, Kape plans to replace its owner’s loan with long-term external financing.
Like Kape, LTMI’s revenue model is based on SaaS (software as a service) that creates a high level of certainty of revenue forecasts. LTMI has over a million SaaS subscribers (similar to Kape) but about half of them in the US, so LTMI’s acquisition makes Kape the largest player in the US market.
The merged company will rank among the top three VPN players in the US and Europe. As of 2019, the total expected merged company revenue is about $110 million and adjusted EBITDA was about $30 million.
The acquisition of LTMI aims to enable Kape to position itself as the leading player in the fledgling privacy field. Particularly against the backdrop of the constant rise in cyber attacks globally and enforcement of information protection regulations (GDPR) designed to protect user privacy. This year, the VPN market is expected to roll $ 24 billion, growing 50% to $ 36 billion by 2022.
Following the acquisition, LTMI CEO Ted Kim will join Kape’s Board of Directors and lead North American operations. LTMI’s founders Andrew Lee and Stefan Deprosferro will become major shareholders in the merged company. Kape’s CEO is Ido Erlichman and Chief Operating Officer is Daniel Sagi Leading the deal together.
It is the largest acquisition in Kape’s history established in 2011, purchased by Sagi in early 2013 for $ 37 million and issued on the British AIM stock in late 2014. Kape trades at a value of $ 142 million, and Sagi holds about 73% of the company’s share capital ( Before the above purchase). Following the acquisition, Sagi will be diluted to a 55.9% stake.
Ido Erlichman, CEO of Kape: “This is a significant moment in Kape’s development. The acquisition of LTMI is a turning point for us, and it will make us the big player in the US, expand our solution basket, strengthen our recurring revenue base and give us access to a rich talent pool. This deal makes our vision a reality in creating the world’s most prominent digital privacy company with The prominent brand in the field. In one acquisition, I believe we have positioned Kape in a way that will soon enable it to become one of the world’s leading digital privacy service providers. ”
This is Kape’s fourth acquisition since Erlichman appointed CEO in May 2016. In July 2018, Kape acquired Intego for $ 16 million. Intego which develops SaaS-based security solutions for Macs and iOS operating systems. In October 2018, Kape acquired ZenMate, the developer of anonymous browsing solutions, for $ 5.6 million, and in March 2017, the company purchased CyberGhost, which also provides anonymous browsing solutions, for $ 10.3 million.
Kape, which specializes in consumer security solutions, has three product lines; The first, network privacy solutions (notably CyberGhost and ZenMate); The second, optimization of operating system performance and the third, malware protection (especially Intego solutions)