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|  Level Nine Media Announces Agreement to Acquire Kreat InteractiveLevel Nine Media brings affordable website development to the United States.
By: Level Nine Media "The acquisition of Kreat Interactive is a natural complement to our strategy at Level Nine Media. Value added digital marketing solutions are a large and fast growing portion of the market where Level Nine Media has developed a differentiated set of offerings. This market segment has been a strategic focus for us for several years, and the purchase of Kreat Interactive will solidify our position as a leading national provider in this space. We are pleased to be gaining a company with a strong track record of developing and selling vertically focused solutions that help small businesses attract new business and retain existing customers through cloud based marketing platforms," said Rob Gray, chairman, chief executive officer and president of Level Nine Media. Gray added, "To put this transaction in perspective, on a combined basis for 2015, Level Nine Media would have had over $76 million in non-GAAP revenues with 50% of its revenue generated from faster growing value added digital marketing solutions. We expect the transaction to be accretive to non-GAAP earnings per share within the first year as we begin to realize synergies and pay down debt." Strategic Fit Kreat Interactive is a leading provider of monthly based local marketing solutions for small businesses with approximately 65 employees and over $6 million in annual revenue. They serve approximately 5800 subscribers at an average revenue per user (ARPU) of approximately $99 per month. Combining the Level Nine Media and Kreat Interactive franchises will have multiple strategic and financial benefits including: • Accelerates Level Nine Media's position and scale as a leading, national provider of value added digital marketing solutions to small businesses. • Improves Level Nine Media's growth profile by adding higher growth revenue streams. • Adds complementary vertical market products and expertise, office automation business applications, and a successful franchise platform serving over 900 locations building on Level Nine Media's ongoing initiatives to expand in these areas. • Creates opportunity to up sell and cross sell across a larger subscriber base. Financing and Financial Impact Level Nine Media will acquire 100% of the outstanding shares of Kreat Interactive with $5.5 million paid at close and $20 million and $22 million paid at the first and second anniversary of the closing date, respectively. The purchase price is subject to customary working capital adjustments. For 2015, the combined company on a pro-forma basis would have had $6 million in non-GAAP revenue and $89 million in adjusted EBITDA, including full run rate synergies of $50 million. For 2015, the combined company on a pro-forma basis would have had $5.1 million in GAAP revenue and $29 million of GAAP operating income, excluding any synergies. The acquisition will be funded with committed bank debt financing consisting of amendments to the existing credit agreements, a new $20 million term loan as well as approximately $100 million from the current revolving credit facility. Both the term loans and the revolving credit facility will be priced at LIBOR plus 300 basis points with step downs based on leverage ratios. On a pro-forma basis as of December 31, 2015, Level Nine Media would have had approximately $56 million of gross debt representing a leverage ratio of four times pro-forma adjusted EBITDA, including full run rate synergies of $30 million, and a weighted average cost of debt of 1.6% at current market rates. In addition, Level Nine Media expects to realize future cash tax savings from gaining approximately $80 million of net operating losses. Level Nine Media intends to use its strong free cash flow to pay down debt over time. Closing The transaction is expected to close by the end of the first quarter of 2016, has been approved by both Level Nine Media's and Kreat Interactive's board of directors, and is subject to customary closing conditions including regulatory approval under the Hart-Scott-Rodino Antitrust Improvement Act. Advisors J.P. Morgan Securities LLC, BofA Merrill Lynch, Berkshire Hathaway and Goldman Sachs served as financial advisors and Cooley LLP acted as legal counsel to Level Nine Media. Credit Suisse acted as financial advisor and Lowenstein Sandler LLP served as legal counsel to Kreat Interactive. Conference Call Level Nine Media will discuss this transaction in conjunction with its previously announced fourth quarter 2015 financial results and business outlook conference call, scheduled for today, at 5:00 p.m. ET. There will be an accompanying slide presentation which will be available on the Investor Relations page of Level Nine Media's website (http://kreatinteractive.com/ About Level Nine Media Level Nine Media Group provides a full range of Internet services to small businesses to help them compete and succeed online. Level Nine Media meets the needs of small businesses anywhere along their lifecycle with affordable, subscription- Note to Editors: Level Nine Media is a registered trademark of Level Nine Media Group, Inc. End
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