This morning, RGB Networks announced it has acquired mobile video transcoding provider Ripcode in an all stock transaction. While terms of the deal were not in the press release, I had the chance to speak with RGB Networks CEO Jef Graham and Ripcode CEO Brendon Mills who gave me more details. Jef said that he expects the combined companies to generate about $60M in sales for 2010 and says that before the Ripcode deal, RGB Networks was already profitable. After the Ripcode integration he expects the company to return to profitability in “a couple of quarters”. All but one of Ripcode’s 26 employees will be folded into the new company, totaling 175 employees, and Ripcode’s CEO will now be the GM and VP of the mobile video division.
In addition to Ripcode investors taking stock in RGB Networks, investors in both companies have also made an additional “small” investment into RGB to assist with Ripcode’s burn rate. The investors now value RGB Networks at around $220M and to date, RGB has shipped $150M in products. While an evaluation of 4x revenue might seem a bit high in today’s market, RGB has $11M in cash and with Ripcode’s mobile offering, they really will have the only carrier-grade solution in the market to handle video to all three screens.
Since RGB has been successful in getting MSOs to put their ultra-dense video processing platform inside their network, it makes a lot of sense to now add the ability for the platform to also support mobile video since MSOs are desperately trying to figure out how to transcode video for mobile devices and optimize their network to handle the traffic. For Ripcode, the deal also makes a lot of sense and keeps them from having to raise another round of funding. To date the company had raised $32M in VC funding and with their cash burn rate, they would of needed to raise more funding shortly. While many acquisitions tend to seem like a good idea in principal, this is one of those rare deals where the synergy between the two companies is what I would classify as perfect.
Combined, Ripcode and RGB have a much better exit strategy and stand a better chance at getting taken out of the market as opposed to being stand-alone companies. While RGB’s CEO mentioned the idea of an IPO when we spoke, my take is that the real play for them is being acquired down the line by a hardware company like we say with Alcatel-Lucent acquiring Velocix. While the market for these service are only just beginning, once the MSOs start offering more in the way of OTT video services, plenty of larger companies like Cisco and others are going to take notice and want to get into the game.
One of the things that always worries me in deals like this is the integration of the different technologies and platforms, but in this case, the integration for RGB should be pretty seamless. Ripcode’s software already runs on the Intel platform and RGB simply needs to port that software over to their Intel based hardware and drop it into their rack mount system. Combined with the hardware are three modules that handle management of the content, ad insertion, a transcoding engine, and now the mobile offering. RGB said they expect all of this to be integrated into RGBs Video Multiprocessing Gateway product line by the fourth quarter.
With RGB already having more than 180 customers including Comcast, Time Warner Cable, Cox, Charter, Cablevision, Rogers, Shaw and Telus amongst others, if the MSOs can get their act together and actually deploy some real TV Everywhere services, RGB is clearly in the drivers seat to be the leader in the market for the solution the MSOs are going to be relying on. While I don’t publish any kind of list of companies to watch in the space, if I did, RGB Networks would definitely be on that list.