AcuityAds Completes Acquisition of 140 Proof Inc.

AcuityAds Holdings Inc. (TSXV:AT) (“AcuityAds” or the “Company”), a technology leader that provides targeted digital media solutions enabling advertisers to connect intelligently with audiences across mobile, video, social and display, announced today that it has completed the previously announced acquisition of 140 Proof, Inc., an industry-leading social and mobile targeting company.

Transaction Highlights

AcuityAds has acquired all of 140 Proof’s outstanding common stock in exchange for an initial cash payment of US$3.0 million, with additional performance based earn-outs (subject to the achievement of certain gross profit and contribution margin milestones) over a 3-year period to a maximum amount of US$20.0 million. Earn-out payments, if any, are expected to be self-funded, and this acquisition is expected to be accretive to AcuityAds’ earnings, as no AcuityAds shares will be issued with respect to the closing of this transaction.

AcuityAds has financed the initial cash payment through a combination of drawing down on its US$6.5 million updated line of credit (the “Facility”) with its existing lender Silicon Valley Bank, along with a C$1.0 million advance (the “Loan”) under an addendum to a credit agreement for a term loan that was previously announced on November 13th, 2015.

As of June 30, 2016 the pro-forma trailing 12-month revenue for the combined organization was approximately $35.0 million CDN.

Business Opportunity

According to eMarketer, in 2015, U.S. advertisers alone spent nearly $11 billion on social network advertising, which is projected to grow to over $19 billion by 2018. By 2020, more than seven out of 10 U.S. internet users will use social networks, and more than nine out of 10 of these users will use a smartphone. Management at AcuityAds strongly believes in these macro trends and sought an acquisition that could better position the Company by enhancing its channel mix in the fast-growing digital advertising marketplace. In fact, as a result of this acquisition, the Company now expects its mobile channels will represent over 40 percent of the total business.

Headquartered in San Francisco, 140 Proof is an advertising technology company that uses social data from many sources to target relevant ads based on consumers’ interests as indicated by their social activity. 140 Proof leverages its patented Blended Interest Graph technology to interpret individuals’ social data from over 700 million public social accounts to drive more targeted media strategies.

With this acquisition, AcuityAds is able to provide marketers with a more granular view of their prospective audience through intelligence gained from social signals. “Social signals” are determined based on what an individual shares, the places they check in, the hobbies they pin about, the influencers they follow and more. Utilizing this technology, marketers are able to develop a complete picture in order to build targeted audiences that are nuanced, comprehensive and accurate.

“The feedback we have already received from our collective customers and partners about combining 140 Proof’s social and mobile targeting with Acuity’s programmatic marketing platform has been extremely positive,” stated Tal Hayek, CEO of AcuityAds. “Customers and partners can look forward to our market-leading self-service platform getting super-charged with the additional 700 million social profiles that will be added by way of this acquisition.”

Details Regarding the Financing for the Acquisition

Information regarding the Facility and Loan can be found in AcuityAds’ announcement dated November 13, 2015. In connection with the acquisition of 140 Proof, AcuityAds has updated the Facility, a revolving line of credit with maximum principal amount tied to certain financial metrics of AcuityAds which was due to mature on November 12, 2016.

The Facility and Loan are secured against the assets of the Company, the Company’s wholly-owned operating subsidiary, AcuityAds Inc. (“OpCo”) and OpCo’s subsidiaries, including through pledges of the shares of AcuityAds’ direct and indirect subsidiaries. The Loan is also guaranteed by the Company and OpCo’s subsidiaries. The security granted for the Loan is subordinate to the security granted for the Facility.

The subordinated Loan has been made pursuant to an addendum dated September 1, 2016 to a credit agreement dated November 13, 2015, between the Company, its subsidiaries and a group of private lenders, who include individuals that are non-arm’s length to the Corporation (the “NAL Lenders”). The NAL Lenders are comprised of executives and a director of the Company, and funded an aggregate of C$0.5 million of the Loan.

The Loan has a term of two years and accrues interest at the rate of 15.25% per annum and is coupled with the grant of bonus warrants. The Company has received TSX Venture Exchange (“Exchange”) conditional approval to issue one bonus warrant (a “Warrant”) to each Lender for each CDN$3.00 principal amount of debt advanced to the Company. An aggregate of 333,333 Warrants were issued to the Lenders today. Each Warrant entitles the holder to acquire one common share of Acuity (subject to customary adjustments) for a period of up to two years at an exercise price of CDN$1.84, which was the closing price of the Company’s common shares on August 31, 2016.