Monday morning, KIT digital (OTC:KITD) officially announced it has acquired NYC based The FeedRoom in an all stock deal valued at around $9.8M. While that's only about 1.5x The FeedRoom's $6M in revenue, the deal will probably end up being closer to 2x revenue since The FeedRoom agreed to the deal some time ago, back when KIT's share price was somewhere around $7.
Mark Portu, CEO of the FeedRoom left the company on Friday and will be consulting to KIT digital during the transition period. Daniel Webster, SVP of Business Development and a ten year veteran of The FeedRoom also left on Friday. As expected, there have been a few other personnel changes at The FeedRoom since last week and I expect we'll see some more as the company gets folded into KIT. The FeedRoom's SF office is going to be closed down and KIT is currently evaluating what its long term plans are for its office space in NYC.
For The FeedRoom, being acquired was really its only option. The company raised $12M two years ago and while it still had some cash in the bank, Mark would have had to have raised another round before too long if the company really wanted to grow its revenue. On paper, the services of KIT and FeedRoom fit nicely together and considering that KIT paid FeedRoom investors with all stock, it was an easy deal.
While the deal makes sense on paper, since it gives KIT a U.S. presence, enterprise and government customers, and all of The FeedRoom's technology, the success or failure of this acquisition will all come down to the integration of the two companies. KIT has a challenge ahead of them since it is doing multiple acquistions and integrations and can't yet know how much of The FeedRoom's revenue will remain come next year.
As with any integration, the real test comes 6-8 months later when you find out if customers are still happy and keeping their business at the new company. If KIT can keep the vast majority of The FeedRoom's $6M in revenue twelve months from now and integrate The FeedRoom's platform with its own, the deal could be positive. But if the integration does not go quickly and smoothly, some of the revenue KIT gains from the acquisition will surely be lost and that will have a negative impact on its bottom line.
Another concern is that KIT loses focus since it has made so many acquisitions as of late and is now entering completely new vertical markets and appear to be trying to be everything, to everyone, across every device. It's possible KIT can pull it off, but all of that remains to be seen. I believe that KIT now has all the pieces it needs to be successful, from a product perspective, but how it prices, packages, markets, sells and delivers those services is going to decide its success or failure. I think we'll know either way when we look at its business in another 9-12 months.