Augme Technology to acquire Hipcricket - Analyst Blog

Ian Gilson, CFA

Augme Technology to acquire Hipcricket.

On August 3, 2011 Augme (AUGT) entered into an Asset Purchase Agreement with Hipcricket Inc. to acquire Hipcricket and assume certain liabilities to be determined at the closing of the deal. The deal should close in the current fiscal quarter ending August 31, 2011.

The purchase price is $4 million in cash plus $38.5 million in Augme stock, up to $2 million to     Hipcricket stock option holders and an earn-out of up to $27.5 million subject to certain revenue projections for a total of $72 million.

The $38.5 million in stock was based on a 20 day average price with a min/max of $2.00 and $3.50. Since the stock was above $3.50 for the period the maximum price of $3.50 equates to 11 million shares.

The earn-outs are based on realized GAAP revenue of $10 million in the 12 months following     the acquisition ($15 million in earn-out) and realized revenue of over $10 million and up to $20 million multiplied by 1.25 ($12.5 million in earn-out)  as long as the revenue has at least a 40% gross profit margin.

We have adjusted our forecasts to reflect our assumptions that Hipcricket will add $12 million in revenue over the four quarters ending in August 2012.

Hipcricket was founded in 2004 with $10 million in capital raised from friends and families of the founders, went public on the AIM (London Stock Exchange) in November 2007 with a $10.2     million (6.8 million English Pounds) and was delisted in mid 2009.

The company adds a number of new industries to Augme Technologies, in particular radio and     television companies. Hipcricket also has a presence in Latin America.

In 2010 the company grew its mobile advertising network significantly, but 55% of its message     delivery is SMS. Over 50% of its 2010 revenue was from repeat customers. In 2009 the     company passed both 45,000 and 50,000 mobile marketing campaign milestones, 65,000 and 75,000 in 2010 and 100,000 in May 2011. Revenue is reported as doubling in 2010.

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