Zix to Acquire AppRiver for US$275 Million

- January 15th, 2019

According to Zix, the combined email security business is set to generate annual recurring revenue of over US$180 million.

Zix (NASDAQ:ZIXIannounced on Tuesday (January 15) that it has entered into a definitive agreement to acquire AppRiver for US$275 million in cash.

The email security-focused firm said that the purchase of AppRiver, a leading provider of cloud-based cybersecurity solutions, will create a company with annual recurring revenue of over US$180 million.

Zix added that the combined business is expected to grow organically by 11 to 15 percent year-over-year in the 2019 fiscal year, while becoming a dominant cloud-based email security player for small- and mid-sized businesses.

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“We’re combining two email security companies that can drive great synergies and higher growth together by leveraging Zix’s superior product delivery and AppRiver’s exceptional customer service and support,” David Wagner, CEO of Zix, said in the release.

According to Zix, the acquisition of AppRiver is expected to double its revenue and adjusted EBITDA; about US$8 million in cost savings are expected within the first 12 to 18 months of the acquisition.

“More specifically, the acquisition helps us expand our customer base, enhance our advanced threat protection position, and accelerate our high-velocity go-to-market strategy through AppRiver’s numerous and long-standing channel partnerships,” Wagner added.

Wagner also noted that the acquisition of AppRiver will accelerate the company’s “offerings into the cloud at the point of initial cloud application purchase.”

“Email is typically the first application that gets moved to the cloud, and this acquisition puts us squarely at the beginning of our customers’ cloud migration,” he said. “We look forward to capturing more mailboxes and additional services for years to come.”

Additionally, the company said it has secured a US$100-million convertible preferred equity commitment from True Wind Capital, and a US$200-million debt commitment from SunTrust Bank and KeyBanc Capital Markets.

In a conference call, Wagner said the acquisition of AppRiver is expected to close in the first quarter of 2019, subject to customary closing conditions. The transactional value of US$275 million will be funded by the proceeds of the preferred equity investment and the term debt, along with the cash on hand.

“The acquisition provides attractive cross-selling opportunities for each other products across both companies and sale basics,” Wagner said on the call. “In addition to expanding our product offering, it massively extends our go-to-market channel with AppRiver’s strong community of more than 4,500 MSP resellers who are all service via a frictionless extensible platform.”

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Separately, the company reported its preliminary fourth-quarter and fiscal-year 2018 results, with Zix expecting revenue for Q4 to be in the range of US$18.3 to US$18.4 million. Zix said that the expected revenue would be an increase of 9 to 10 percent as compared to its 2017 fourth-quarter results.

The company, which ended the quarter with US$27.1 million in cash and no debt, expects its annual contract value to be approximately US$76 million, translating to a 13-percent increase from the fourth quarter of 2017.

Similarly, the company expects revenue for the 2018 fiscal year to be in the range of US$70.3 to US$70.4 million, representing a 7-percent increase from 2017 levels.

“We entered fiscal 2019 with a robust backlog and building momentum, and look to continue driving growth in our email protection bundles and multi-tenant cloud platform,” Wagner said. “Ultimately, we believe this will translate into another year of profitable growth and increasing shareholder value for the company.”

Following the news, shares of Zix were down 1.34 percent to close the trading session on Tuesday at US$5.89. The stock opened at US$5.90 and reached a day high of US$6.27 with a low of US$5.34.

Zix has a “neutral” ranking on TradingView with 10 verticals against, 10 in neutral and eight in favor. The stock has a “moderate buy” ranking on TipRanks with an analyst target price of US$8.25; that represents 40.07-percent upside from its current price.

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Securities Disclosure: I, Bala Yogesh, hold no direct investment interest in any company mentioned in this article.

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