Jaywing Plc (AIM: JWNG), the marketing and data science business specialising in integrated marketing and risk and data consulting, is pleased to announce that it has agreed to acquire Midisi Limited (“Midisi”), a marketing software development business (the "Acquisition").
Midisi owns the intellectual property rights for the 'Decision' software Jaywing currently sells under a licence arrangement.
The Decision Software
Decision is an award-winning Artificial Intelligence solution for online marketing activity that Jaywing currently sells to certain clients which enables them to automate Pay-Per-Click advertising management. Decision is a fully automated and self-learning tool that adapts to market supply and demand in near real-time. Decision uses algorithms to combine evidence from multiple data sources to enable Jaywing’s clients to make actionable decisions to maximise performance, be it sales, leads or other goals. The system works within an evidence-based mathematical framework, underpinned by probability theory.
Decision takes multiple first and third-party data sources and optimises performance based on objectives set by each client. Once implemented by a client, the Decision tool operates continuously in near real time, and the Directors believe that its self-adapting approach is significantly more efficient than competing models based around human intervention.
Decision works with bidding platforms, including Google, and has shown in tests that it can produce superior results against client-specific objectives by bringing in additional data sources. It can be tailored to diverse scenarios and can also be integrated into clients’ CRM systems.
The current arrangements with Midisi
Jaywing currently sells Decision to clients via a licensing arrangement with Midisi, which generates revenues of approximately £460k per annum for the Company, from just 6 clients. Revenues are currently subject to a licence fee of 50% of the gross revenues to Jaywing from Decision which are payable to Midisi. After the licence fee, Jaywing currently earns approximately £230k of net revenue in its P&L from sales of Decision. Key clients include ADT, who use Decision to automatically align advertising spend to current local engineer availability. The software connects directly to their Salesforce CRM system to monitor and learn from actual sales appointments.
The benefits to Jaywing of the Acquisition
The Acquisition would enable Jaywing to take full ownership of the IP for Decision, thus providing a full revenue contribution from Decision sales. The costs of running Decision are relatively fixed and the planned further growth of Decision sales to existing and new customers is expected to help improve Jaywing’s overall margins as well as increase its recurring revenues. The Acquisition will provide a core platform for establishing an in-house Research & Development unit within Jaywing to develop and introduce new technologies to solve client challenges. The Directors believe that there is a strong commercial rationale for the Acquisition.
Revenue growth and continuing development of the software will be supported by retention of the expertise and knowledge of three of Midisi’s shareholders – one as a Jaywing employee and two via a consultancy agreement.
The Directors believe that the Acquisition will be immediately earnings-enhancing from the retention of 100% of revenues, and that both the revenue and profit will increase over time as Jaywing focuses on adding new clients and developing the proposition further.
Details of the Acquisition
The initial consideration for the Acquisition is £400,000, to be paid from Jaywing’s existing cash resources, plus excess cash of £845,230. Further fixed payments totalling £1.4m will be paid at 6-monthly intervals over 42 months, plus an additional performance-related earn-out payable at 6-monthly intervals between months 13 and 49, funded out of planned cashflows generated from Decision revenues. The earn-out relates to revenues generated from Decision, and the maximum earn-out payment is capped at £3.2m. Following the Acquisition, the incremental revenue contributions delivered by Decision are estimated to be at least £5.7m over 42 months, based on planned growth in the client base and enhancements to other existing Jaywing services. This would generate earn-out payments totalling £1.7m.
For its financial year ended 30 April 2022, Midisi generated revenues, EBITDA and profit before tax of £231,849, £149,169 and £146,411 respectively, and as at 30 April 2022, had gross assets of £934,223.
Andrew Fryatt, Chief Executive, commented:
“Digital marketing has now overtaken all other forms of marketing spend in the UK, and this acquisition enables Jaywing to significantly enhance its automation and use of AI, which gives us a strong advantage in this market. The acquisition will be earnings-enhancing from the outset, with the removal of the existing licence fee arrangement, and offers huge potential for accelerating growth over the next few years.”
Andrew Fryatt (CEO) Tel: 0333 370 6500
Cenkos Securities plc
Callum Davidson (Nominated Adviser) Tel: 0207 397 8920