• KIT Digital's Deals Signal "Race to Scale" is Well Underway

    This morning KIT Digital announced 3 acquisitions, of social/video platform KickApps, online video platform Kyte and French OVP Kewego. The aggregate consideration is $77.2 million, as follows, according to the press release:

    KickApps - $44.7 million, all in KIT stock (KickApps had $12 million in 2010 revenues and had raised approximately $32 million)

    Kewego - $26.7 million, including $11.7 million in cash and $15 million in KIT stock (Kewego had $10.2 million in 2010 revenues)

    Kyte - $5.7 million, including $3.1 million in cash and $2.6 million in KIT stock (Kyte had $3.7 million in 2010 revenues and had raised more than $23 million)

    This morning I talked to Kyte's COO Gannon Hall (who will relocate to KIT's Prague headquarters as EVP of Marketing) and KickApps' CEO Alex Blum (who will become COO, responsible for product, technology and client services).

    The bet that KickApps and Kyte are making here is that KIT will be one of the global leaders as video delivery moves to an all IP (online and mobile) model. As Alex said, this is a "race to scale" and with its multiple offices and relatively deep financial resources, KIT is perceived as one of the eventual winners. With expected revenue of around $100 million in 2010, KIT would almost certainly be the largest pure-play video management companies. Since KickApps investors took an all stock deal, they must be very bought into KIT's vision.

    Gannon further explained that while the OVP market here in the U.S. has been growing, Kyte's concern has been the increasing "commodification" of the various platforms, and finite set of potential customers. Considering the haircut Kyte investors took on the KIT deal, it appears that they deemed a go-it-alone strategy untenable. By linking up with KIT, Kyte is looking to participate in larger, international deals, and sees KIT competing more with the likes of Alcatel, Cisco and Microsoft. Conversely, the addition of both KickApps and Kyte certainly strengthen KIT's presence in the U.S.

    The thing that I've never quite understood about KIT's acquisitive strategy is how it integrates all the various platforms under its roof into one cohesive whole, though somehow they've figured out how to make it work. Alex and Gannon said with their respective platforms that having used open standards and APIs will help, and that the integration is already under way. Both see themselves adding a presentation layer to existing back-end systems KIT already has in place. And both were aware of the acquisition process for each other.

    Taking a step back, the 3 deals suggest another step in the maturing of the online video market and increasing consolidation. Especially for clients that operate in multiple geographies around the world, being able to tap into local talent looks like a differentiator. For smaller, private OVPs with limited resources, this requirement will become a bigger issue.

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