Beijing Jetsen Technology (“Jetsen”) will invest $18.1 million (USD) in Avid Technology for a minority equity stake of between 5.0% and 9.9%. Jetsen will also receive a board observer seat on Avid’s board of directors. Closing of the investment is subject to government approvals, which Avid expects to receive during the second quarter of 2017.
The final ownership percentage is determined by dividing the investment amount of $18.1 million by the volume-weighted (i.e. denominator is cumulative volume) average market price of Avid’s shares for the 30 days preceding the closing date. As a reference point, Avid shares closed at $5.03 on Monday, January 30, 2017. Using this share price figure, the investment would equate to an equity stake of approximately 8.2% on a fully diluted basis.
Jetsen is headquartered in Beijing, China and listed on the Shenzhen stock exchange (2011 IPO). Jetsen’s has operations in several segments of the media sector including an integration services business, a production company, along with investments in film and television programming. At current exchange rates Jetsen had over $450 million (USD) in total revenue for the twelve month period ending September 2016. Jetsen is active in several other verticals in addition to media. Based on a review of its 2015 annual report, media operations accounted for approximately 30% of total revenue.
Avid provided the below summary slide on Jetsen as part of its presentation accompanying the announcement.
Concurrent with the investment, Avid entered into a commercial partnership making Jetsen the exclusive (master) distributor of all Avid products and solutions for the Greater China region (encompassing China, Hong Kong, Macau, and Taiwan). All existing Avid channel partners in Greater China will transfer to Jetsen. The agreement will also include technical support, with any associated maintenance revenue benefiting Jetsen.
“Jetsen’s strong position in the region, combined with Avid’s market-leading products and comprehensive solutions, presents an exciting opportunity for Greater China’s fast-growing media industry,” said Shengli Han, CEO, Beijing Jetsen Technology.
Avid will receive annual minimum performance guarantees for Greater China amounting to an approximately 15% annual growth for the region. The growth refers to both recognized revenue and cash received. The contract has a duration of five years. The total contract value for the first three years alone represents at least $75 million to Avid.
In addition, Jetsen will take over Avid’s operations in Greater China. This represents a cost savings to Avid in the amount of $3 million annually. The below slide from Avid’s presentation offers a summary of the key terms.
During the conference call with analysts, Louis Hernandez, Jr., Chairman and Chief Executive Officer of Avid added context on the rationale behind the equity investment by Jetsen. “They [Jetsen] are really the ones that wanted to infuse equity. We had several ideas we were running to shore up our liquidity and cash not because of our concerns, we know it’s a significant concern to investors, so we wanted to take that out of the equation so they focus on what’s about to happen with the end of the transformation, and but that’s something they wanted to do. As long as we structured in a way that would minimize dilution, we are open minded to it and that’s where what how we ended up.” said Hernandez.
Throughout the conference call with analysts Louis Hernandez, Jr. referenced Avid’s ongoing transformation, which management has communicated will end with the second quarter of 2017. Consistent with this message, Hernandez added the following commentary on the Jetsen agreement, “As we start to enter the next phase of Avid’s strategy, our agreement with Jetsen will give us much stronger go-to-market capabilities to expand our market position, drive consistent business growth and have the needed partner to accelerate our cloud-enabled Avid Everywhere strategy across Greater China.”
© Devoncroft Partners 2009-2017. All Rights Reserved.