Enghouse Systems Acquires Vidyo For Video Collaboration Tech

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About: Enghouse Systems Limited (EGHSF), Includes: ADBE, BABA, CERN, CSCO, ETSY, KGHI, LOGI, MSFT, NTTYY, PHG, PLT, ZM, ZTCOF
by: Donovan Jones
Summary

Enghouse has acquired Vidyo for $40 million.

Vidyo has developed video communication and collaboration technologies, with customer concentration in healthcare and financial services.

With the deal, Enghouse is gaining a full-featured video collaboration system at an attractive price.

Quick Take

Enghouse Systems (OTCPK:EGHSF) announced it has acquired Vidyo for $40 million.

Vidyo has developed a patented video chat platform that can be integrated into any application.

Enghouse appears to have acquired significant new capabilities for a bargain price that it can apply across all of its business segments.

Target Company

Hackensack, New Jersey-based Vidyo was founded in 2005 and provides a cloud-based multiparty video chat system that can be integrated into any application, on any connected device.

Additionally, the company’s VidyoEngage platform allows for customer engagement via video chat over long distances.

Management is headed by Chairman and CEO Michael Patsalos-Fox, who has been with the firm since 2017 and was previously CEO of Stroz Friedberg.

Below is an overview video of VidyoConnect, the company’s enterprise meeting solution for team collaboration:

Source: Vidyo

Vidyo’s primary offerings include:

Company partners or major customers include:

Investors invested $170.3 million in the company and include Sevin Rosen Funds, Rho Ventures, Kaiser Permanente Ventures, Menlo Ventures, QuestMark Partners, Luminari Capital, Blue Cloud Ventures, and Juniper Networks among others. Source: Crunchbase

Market & Competition

According to a market research report by Global Market Insight, the global video conference market was valued under $11 billion and is projected to exceed $20 billion by 2024.

This represents a CAGR of over 10% between 2018 and 2024, as shown by the graphic below:

The main driver for this expected growth is the rise of globalization.

During the forecast period, the Asia-Pacific region is projected to grow at a faster CAGR of over 14% due to supportive government policies.

Major competitive vendors that provide video conference services include:

Source: Sentieo

Acquisition Terms and Financial

Enghouse disclosed the acquisition price as $40 million and did provide a change in financial guidance.

Vidyo generates annual revenue of approximately $60 million, so Enghouse acquired it for 0.67x revenues.

A review of the firm’s most recent financial report indicates that as of January 31, 2019, Enghouse had CAD190.5 million in cash and short-term investments and CAD$160.7 million in total liabilities.

Free cash flow for the three months ended January 31, 2019, was CAD$24.0 million.

In the past 12 months, Enghouse’s stock price has dropped (2.69%) vs. PSJ Software ETF’s rise of 28.76%, as the chart below indicates:

Source: Sentieo

Management has produced positive earnings surprises for seven of the last 12 quarters, per the chart below:

Source: Seeking Alpha

Commentary

Enghouse acquired Vidyo as a complement to its product offerings in the media nad content space.

As Enghouse stated about Vidyo in the deal announcement,

The company focuses on select vertical markets, particularly healthcare and financial institutions, where video quality, reliability and end-market specialization are essential requirements. Vidyo is deployed in approximately 400 hospital networks and in approximately 120 financial institutions. Vidyo also provides visual communications within the broader enterprise collaboration market and in emerging public safety, field services and IoT use cases. The company's platform and applications are used by over 1,700 customers, including some of the world's leading brands within Vidyo's focus markets.

The video collaboration space is a hot area for development, as companies seek efficient ways to enable greater communication between employees, vendors, and customers, resulting in reduced costs, improved customer service, and speedier time-to-market.

With Vidyo having raised in excess of $170 from its investors and Enghouse paying $40 million, Enghouse likely got the better end of this opportunistic transaction.

While it won’t initially move the stock price for Enghouse, the acquisition points to management’s nimble approach to acquiring new capabilities that it can apply across its business verticals.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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