Sezmi -- a well-financed startup that tried to challenge cable and satellite TV operators with a cheap hybrid broadcast-Internet video service -- has been acquired by Czech Republic-based video management services provider KIT Digital for $27 million.
Founded in 2006, Sezmi had raised more than $92 million from investors including Morgenthaler Ventures, OmniCapital Group, Index Ventures, TD Fund, Legend Ventures and Advanced Equities.
KIT Digital acquired certain assets and liabilities of Sezmi on Dec. 30, 2011, the company said Friday. Investment bank Stifel Nicolaus Weisel was the exclusive financial advisor to Sezmi in the transaction.
Sezmi had marketed an inexpensive bundle of live and VOD content in 36 U.S. markets, starting at $4.99 per month, delivered via a combination of broadcast airwaves -- leased from local TV stations -- and broadband Internet. "The main complaint from consumers is that cable is too expensive," Sezmi president Phil Wiser said in a 2008 interview. "People don't think it's a good value."
But Sezmi's service, first launched in Los Angeles in 2010, never gained traction. In September 2011, Sezmi announced it was shutting down the consumer service in favor of trying to sell the technology platform to service providers.
Belmont, Calif.-based Sezmi has approximately 80 full-time employees and contractors in the U.S., with another 55 in India. Its customers include Mexican mobile operator Grupo Iusacell and Malaysian utilities and telecommunications provider YTL Communications.
KIT Digital, after adjustments for net negative working capital, paid approximately $16 million in upfront cash (including the assumption of liabilities, some of which may be paid over time) and approximately $11 million in approximately 1.2 million shares. That doesn't include future earn-out provisions, which KIT Digital estimates will total $20 million to $25 million over three years.
As part of the deal, KIT Digital acquired 18 patents from Sezmi related to over-the-top platform provisioning in the mobile, online and digital terrestrial television environments.
"Sezmi has been an early mover and one of the few direct competitors providing integrated, multidevice platforms for [over-the-top] premium content offerings -- with unique capabilities in hybrid 4G/LTE and DTT deployments," KIT Digital president Gavin Campion said in announcing the acquisition. "Our companies share a commitment to serving the most complex client needs in our industry, and we are excited to kick off 2012 with the addition of their major clients, valuable technology and patents, and world class personnel."
According to KIT Digital, the Sezmi business will generate revenue of at least $20 million in 2012, with a cash earnings contribution of approximately $4 million.
"The timing of this transaction is ideal," Sezmi's Wiser said in a statement. "The large customers we've been working with are excited to work with a larger-scale organization like KIT Digital, and they appreciate the redoubled commitment to the strategic solutions we're building for them. We believe the industry's evolution favors global scale, R&D and deployment experience, and our customers, employees, technology partners and other stakeholders will all benefit from being part of and served by the industry leader."
KIT Digital claims to have more than 2,450 clients in more than 50 countries. Customers include Associated Press, AT&T, BBC, BSkyB, Disney-ABC, Google, Liberty Global, MTV, NBC Universal, News Corp., Verizon and the U.S. Olympic Committee.
On Friday, KIT Digital raised its guidance for 2012. With the Sezmi acquisition, the company now expects sales of at least $320 million (versus $300 million previously) and adjusted earnings per share of at least $1.53 (versus $1.45 previously).