Cineplex Offers To Buy Software House EK3

July 18, 2013 by Dave Haynes

Ek3-logo_large-300x165Canada’s biggest movie theatre chain Cineplex – which has a substantial and solid digital signage team, has announced its offer to purchase EK3 Technologies Inc., which is best known as the London, Ontario-based software house that does the menu boards for Tim Hortons.

The news release say the “initial purchase price is approximately $40 million, subject to certain adjustments to be made at closing, plus a reverse earn-out payment subject to an aggregate maximum purchase price of $78 million for both payments. The reverse earn-out payment will be based on 2015 operating results and will be payable in early 2016 in the event certain targets are achieved.”

 EK3 designs, installs, manages and consults on some of the largest digital merchandising networks in North America, with networks viewed by more than 1.8 billion shoppers annually. The company has developed proprietary state-of-the-art technology and patented software, and provides creative content production, media sales and extensive network operations services, which delivers digital merchandising networks that are scalable, reliable and secure.

EK3 clients include major retailers, such as Tim Hortons, McDonalds, Walmart, Target, as well as Canadian financial institutions RBC Financial Group and BMO Financial Group.

The acquisition complements Cineplex’s existing digital signage business, Cineplex Digital Media (“CDM”), whose clients include Scotiabank, CIBC, SunTrust, Rogers, Oxford Properties, Brookfield office towers and ONroute, among others.

EK3 will be renamed and operate as Cineplex Digital Networks (“CDN”), and will continue to be led by EK3 President and CEO, Nick Prigioniero.

“Cineplex’s brand, resources and media sales along with EK3’s proprietary technology platform, network management, award-winning creative services and digital merchandising expertise is a powerful combination,” said Ellis Jacob, President and CEO, Cineplex Entertainment.  “The strengths of CDM and CDN will make us a leader in the indoor digital signage industry and provides a platform for significant growth throughout North America.”

EK3 has annual revenue of approximately $26 million and Normalized EBITDA of approximately $4 million.  The reverse earn-out payment will be based on a multiple of 6x 2015 adjusted Normalized EBITDA in excess of $4 million, subject to certain adjustments, with an aggregate maximum purchase price of $78 million for both the initial and the earn-out payments.

I know both sides on this deal, which should close in a couple of week, but did not see this coming. I did know Cineplex has been looking around for acquisitions and was eager to grow the digital side of its business, which is relatively tiny in revenue when compared to all the money derived from movie tickets and $9 bags of popcorn.

I spent a day at EK3 – which has offices connected to the local newspaper (felt familiar) and was pretty impressed by how they were managing, in particular, the Tim Hortons account (did some work with them).

EK3 has always operated very, very quietly, but won some pretty big accounts along the way. I don’t know their software well but have talked to users who said it was solid. They leverage the computing talent coming out of the universities in that region, like Waterloo and Western.

The Cineplex digital people (known for years as DDC before also being acquired by Cineplex) will continue to operate as a separate company for at least 2.5 years while EK3 is in the midst of that whole earn-out thing.

Interesting news. I was Skyping with another guy who was saying he was soon announcing a couple of acquisitions, as well.

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