Mitek Systems, Inc., (BULLETIN BOARD: MITK) , located in San Diego, California, and Parascript, LLC, located in Boulder, Colorado, today announced that they have entered into an agreement to create the largest Image Analytics software provider with a broad product portfolio of Intelligent Recognition software and identity validation solutions.
The primary driver of the combination is to create a strong platform to pursue growth in revenues and earnings based on the market opportunities for next-generation Image Analytics technology used to accurately capture handwritten or machine printed information from checks, forms, and mail, while dramatically reducing data entry expenses.
Image Analytics technology is utilized in check and remittance processing, mail automation, check fraud prevention and identity theft detection. The company will pursue new opportunities for growth by delivering Image Analytics solutions to the government and life sciences industries. The combined company's increased scale, scope and global capabilities are anticipated to enhance long-term value for customers, employees and shareholders.
The transaction, which was approved by the board of directors of Mitek and Managers of Parascript LLC., will build upon the complementary strengths of each company.
"This combination is about a strategic fit between two experienced and well-respected leaders who together will become a more powerful force in Image Analytics," said James DeBello, President and CEO of Mitek who will become the CEO of the combined company. "A combined Mitek and Parascript will have strong leadership in the areas that will define next-generation recognition software technology, and boast one of the largest research and development capabilities focused on recognition software. We believe this transaction will create enhanced value for shareholders of Mitek and unit holders of Parascript who will benefit from owning what we intend to make the most dynamic, global player in the Image Analytics industry."
Jeff Gilb, President and CEO of Parascript who will become President and COO of the combined company said, "The combination of Parascript and Mitek presents new growth opportunities that were not available to Parascript when it was a privately held company. The recognition software industry is at the beginning of a significant transformation of applications and services -- one that is projected to enable higher performance and greater labor savings for our customers. This brings extraordinary opportunities for our combined business to accelerate its growth. The combination creates a new company with a comprehensive portfolio that will be poised to deliver significant benefits to customers, employees, and shareholders."
Overview of Strategic Combination
The combined company will be named Parascript, Inc. and will derive revenue primarily from North America, Europe and Asia. As of December 31, 2005, the companies had about 130 employees.
The combined company will have:
- A strong financial base and anticipated annual pre-tax cost synergies
- A formidable position in recognition software for mailing and shipping, check and remittance processing, fraud detection and prevention, and forms processing markets
- A growing momentum in advanced fraud prevention and counterfeit detection technologies including security applications
- Deep and strong, long-term relationships with major Independent Software Vendors (ISVs), systems integrators and solution providers around the world who service the postal, mail automation, Business Process Outsourcing (BPO), banking and financial services industries
- First-rate R&D capabilities, including operations in Moscow, Russia
- An experienced management team with a common vision and proven track record
- A diversified customer base with a product presence in twenty-two countries
A Broad Management Platform
The combined company will be managed by a team that reflects a balance between the two organizations, taking into account the best talents of each company and the multicultural nature of its workforce. Beginning immediately after closing, there will be a Management Committee that will work towards seamless integration, while ensuring continuity in the leadership of the two companies. The Management Committee of the combined company will be headed by Jeff Gilb, President and COO.
Commitments to Customers and Stakeholders
"Our customers will benefit from a partner with the scale and skill to design and deliver advanced Image Analytics software to the market with an unparalleled focus on execution, innovation and customer service. We will continue our commitment to exceeding customers' expectations and delivering the highest quality software," said Jeff Gilb. "Jim DeBello and I will work hard with our leadership team to draw upon the key strengths and culture of technical excellence within each company to uniquely position the combined company for success, growth and value creation from next-generation Image Analytics technology." "We are committed to moving forward aggressively after closing and quickly combining our operations and integrating corporate cultures to ensure that we capture the full benefits of this combination for our customers, shareowners, and employees," James DeBello said. "We share a vision of where Image Analytics are going; a commitment to world-class customer service; and a highly skilled, motivated workforce. We are excited about the tremendous opportunity to establish the course for this future together."
Overview of the Transaction
Under the terms of the agreement, Parascript unit owners will receive $80 million in cash and 52 million shares of Mitek common stock. For tax and legal purposes, the transaction is a purchase by Mitek of substantially all of the assets along with associated liabilities of Parascript. For purposes of Generally Accepted Accounting Principles (GAAP), the transaction is anticipated to be treated as a reverse acquisition, with Parascript acquiring Mitek. The transaction is anticipated to be accretive to earnings per share in the first year post closing with synergies, excluding restructuring charges and amortization of intangible assets.
The combined company's common stock will continue to be traded on the Over the Counter Stock Exchange. It is anticipated that the combined company will take action such that it is eligible to be listed on NASDAQ, and to apply for such listing as soon as practicable.
Funding for this transaction is being provided by a combination of $35 million in subordinated convertible notes and $55 million in senior debt from Plainfield Asset Management, LLC. The subordinated notes will be convertible into approximately 22 million shares of Mitek common stock at a conversion price of $1.60 per share. From the remaining funds obtained from Plainfield, we estimate that approximately $9 million will be used for expenses related to the transaction and $1 million will be used for general working capital purposes. In addition, Plainfield has provided a revolving line of credit for up to $5 million. Upon completion of the combination and on a fully-diluted basis, Mitek shareholders will own approximately 22% of the combined company, Parascript unit holders approximately 55% and Plainfield approximately 23% on an as-if-converted basis.
The combined company created by the transaction will be a Delaware corporation, with executive offices located in Boulder, Colorado. The board of directors of the combined company will be composed of seven (7) members, including DeBello and Gilb, Mitek's Chairman John M. Thornton, Parascript director Aron Katz who will serve as Chairman of the combined company, and three (3) independent directors to be mutually agreed upon by Mitek and Parascript, who meet the requirements of NASDAQ.
The transaction is subject to approval by shareholders of Mitek and the unit holders of Parascript, as well as regulatory authorities and to other customary closing conditions. The transaction is expected to close within approximately 6 months. Until the merger is completed, both companies will continue to operate their businesses independently.