Qumu, a Minneapolis-based maker of video software tools, will merge with New York firm Synacor Inc.
"This is a strategic and highly synergistic combination that creates operating software scale and accelerates growth," said Himesh Bhise, CEO of Synacor, in a statement released Tuesday. "Together with Qumu, we will be a software-focused business with about $50 million of high-margin recurring revenue, positioned in the attractive collaboration product segments of e-mail, identity and video."
Synacor, publicly traded and based in Buffalo, is a cloud-based software company that focuses on video, internet and communications providers. It had annual revenue of $144 million in 2018 but has lost money the previous six years.
The all-stock transaction is expected to close in mid-2020 with Qumu shareholders receiving 1.61 shares of Synacor for each share they own.
Vern Hanzlik, president and CEO of Qumu, said in a conference call about the deal that combining the companies gives them some economies of scale that should make them stronger.
"Admittedly, as micro-cap publicly traded companies, both organizations have faced challenges resulting in a lack of financial scale, market liquidity and other inefficiencies while incurring significant public company expenses," Hanzlik said. "By eliminating these redundancies, we will generate significant and immediate cost synergies."
With 13.56 million shares outstanding and Synacor shares trading around $1.45 per share, the deal is valued around $20 million. At closing, Synacor stockholders will own approximately 64% of the combined company and Qumu shareholders about 36%.
"Both boards of directors and both management teams believe that this is a strategic and highly synergistic combination," Bhise said on the conference call.
Qumu is one of the smaller public companies in Minnesota, with annual revenue in 2018 of $25 million. Formerly known as Rimage Corp., it went public in 1992 and its annual revenue peaked at $108 million in 2007.
Rimage was a disc publishing company, but it got into the video content management software business when it acquired Qumu in 2011 and later adopted its name. In 2014, it sold its legacy disc publishing business to concentrate on the enterprise video software market.
Synacor is in the midst of its own restructuring. Earlier this year, the company ended a relationship with ATT.net to provide web-portal services. The ATT contract provided a big portion of Synacor's business. That's the reason that a combined Synacor and Qumu are expected to have revenue of $120 million, significantly less than the $143 million in revenue Synacor recorded in 2018.
As part of the transaction, Synacor will restructure its board of directors. The seven-member board will include Bhise and three members selected by Synacor, two directors by Qumu. The combined board will search for a seventh independent director.
Hanzlik, who has been CEO of Qumu since 2015, will join Synacor as chief revenue officer of software and services and report to Bhise.
"With Synacor having an extensive network of more than 1,900 distribution partners and an established base of more than 4,000 customers, the merger will immediately accelerate our go-to-market efforts," Hanzlik said in a release.
Shares of both companies closed down on Tuesday. Synacor shares closed at $1.40, down 13 cents, while Qumu shares closed at $2.16, down 38 cents.