Blinkx, the online video provider, has made a knockout $30m (£18.5m) bid to acquire Burst Media, an internet advertising network, to create a new kind of TV channel for the web.
Under the offer, shareholders in Burst Media, which is listed on London’s Aim but primarily operates in the US, will receive 25p per share in cash or Blinkx stock – a 400 per cent premium to the previous day’s closing price of 4p.
Shares in Blinkx leapt by 10 per cent to 122p on the news, which was accompanied by a trading statement that put the video company’s revenue and profits ahead of expectations.
Blinkx’s search technology, which is based on software from former parent Autonomy, will allow it to analyse the content in individual articles on Burst’s large network of niche sites, read by 130m people a month, and serve up appropriate clips from its library of 35m hours of online video.
“A big part of what is driving online video as an ad format and an industry segment is it feels and looks like TV online,” said Suranga Chandratillake, Blinkx chief executive. “But one of the things it doesn’t have compared with real TV at the moment is scale. The reason ad networks in general were always interesting opportunities for us is they have this huge scale. If you can convert it into a video experience, you get the scale that advertisers want to replicate from television in online video.”
The deal will give Blinkx an audience comparable with a digital or satellite TV channel such as Dave, across a range of “long-tail” sites targeting niches such as “CEO moms” or young men who play video games.
After making its Aim debut at a price of 86p in 2006, a profit warning four months later saw Burst’s shares fall radically, hitting a low of 3½p in 2008. Its management has spurned other takeover bids before accepting Blinkx’s offer, which will be funded via a placing.
Mr Chandratillake said Blinkx’s bid for Burst was a “fantastic deal” compared with valuations for similar businesses. “The valuation for ad networks in the US and UK is usually two-times sales and we have managed to acquire Burst for 0.8 times sales,” he said.
For example, Rogers Communications, the Canadian internet and TV company, acquired BV Media, an ad network similar to Burst, for a valuation estimated to be twice its revenues last year.
Burst reported revenues of $37.7m in the year to December 31, with pre-tax losses of $3.9m. Blinkx has received written consent from Burst shareholders making up 82 per cent of its shares in issue. The deal is expected to close on May 9.
Blinkx said that its revenues in the year to March 31 would be more than $65m, up 90 per cent on the prior year. Cash consumption relating to the Burst deal is not expected to exceed $4.5m of its $52.8m.