Welcome to the Verve Group press conference. During the Q&A session, participants are able to ask questions by dialing five on their telephone keypad. Now I will hand the conference over to the CEO Remco Westermann and CFO Paul Echt. Please go ahead.
Yeah, good morning to everybody. Happy to have our financial hearings today for a special event. The topic is the acquisition of Jun Group by Verve Group, and I would like to welcome our investors, our analysts, and all other stakeholders. We would run you through the presentation, and afterwards there's the possibility to ask questions. Yeah, a few key investment highlights. We talk about a transformative acquisition. There is an, and I'll just go through the slides through different topics. It's a perfect strategic fit. On the demand side, we are expanding our strong supply business, where we really have a strong position with the demand side. That's something that we announced already, that that's part of our strategy to really get stronger on the demand side, to get a more equality between demand and supply. And that's what this transaction is really making possible.
They have a Jun Group has a strong demand-side technology platform, strong mobile focus, which also fits very well to our focus on emerging channels, on mobile channels. It's a U.S.-centric business, which is already two-thirds of our revenue, so it's only making us stronger in the U.S., our core market. With the acquisition, we get access to over 230 customers, including many Fortune 500 brands, so really making us stronger towards agencies and brands. There are a lot of unique revenue and cost synergies between the two companies. It's really amazing how they fit together. With those synergies, yeah, it's a super attractive acquisition multiple of 3.8x EBITDA. We are talking about a highly experienced management team. We met them in person. We had several discussions with them.
It's really cool to get them on board, and they are committed to the company's continued growth and success. CEO will also stay on board and work with us. And then, yeah, it's a super profitable company with an EBITDA margin of 50%. 93% of that is cash, a high cash conversion as such, which will also make our company together financially stronger. Getting into a bit more detail. Yeah, Jun Group, what are they doing? A bit more details here, and I would like to start on the right upper side with the customer base. So they have a really great customer base. Demand side, as I mentioned before, working with the top HoldC o agencies, so the big worldwide agencies like the WPPs and the Havas, but also with large local agencies. And, yeah, customer portfolio you also see here. It's really top-notch brands they are working for.
So happy to add this. A bit about, yeah, numbers, left upper side. They were founded in 2005, so they are a substantial time in the market. 97% of the revenue is U.S. revenues. I mentioned that before. Over 90 employees, over 230 clients, as said already. And they did in 2023, $72 million net revenues with a 50% EBITDA margin. Positioning, left bottom side, on the demand side. So that's really what we were looking for, which is really strengthening us as we have a very strong position on the supply side. Also a bit on demand side already, but this is really bringing us much further. And then looking into 2024, yeah, 21% organic growth, expected, $45 million EBITDA, with an average customer revenue of over $500K per customer. And, yeah, pretty good numbers also in viewability and those things.
That's more the numbers for the customers, but they really are very performant. A bit about the product offerings. A cool suite of products also for the demand-side. So also this is adding really a lot of additional solutions for the total group. Start on the right side. ManagePlus is a self-service tool for clients to launch their own campaigns, to pull reporting and to also optimize their campaigns. Cool, cool, tool, a very nice interface to work with. Customers are super happy with it. And then they have Vera, which is an artificial intelligence engine which optimizes the campaigns, taking all the data and the creative and everything into account. Also, that's a very cool tool, which is extending or let's say fits very well to the AI investments we have made in the past or in the recent past and still are doing.
AI is really what makes the targeting tick, and that is here also something nice to add for us. Then they have Schema. Schema is a so-called zero-party polling data tool. It allows you to ask questions to customers, so people that have a mobile phone or another device. With those questions, you can target much better. This is what the customers really love on their, let's say, self-service offering. That brings me also to the next slide where there's an example that's using Schema. It's for Smithfield that was promoting their Farmland products, big U.S. company. They want to have a bigger part in the, let's say, bigger share of the shopper cart, so get, let's say, people putting more orders in there. That was a campaign they did together with Jun Group.
Yeah, and the results were really extremely good and still are very good. So 4.9% click-through rate, where the benchmark that they were hold against was 1%. 63% add to cart rate, so also well over the benchmark. And if you look at return on advertising spend, $26.18 versus the $4-$10 benchmark. So super happy client. And this is only one example. There's many more. So what they're doing really works and is making the customer super happy. Then a bit, yeah, further into the customer base. They have a very good diversification of the customers. The largest customer doing 9%. Also the customer base is growing very nicely, as you see on the bottom. The 238 I mentioned already, and there's further growth also in 2024.
Yeah, looking at the revenue spend per tranche per customer, 60% spends over EUR 1 million, or 66% actually, I have to add the 6 and the 60, spends over EUR 1 million per year. That's 2023 data. Also really substantial customer pockets here. Talking about the combined group. Some highlights. Yeah, it's a combined platform. It's a technology business we are in, so it's really scaling. The more scale you have, the more efficiency you get. So with this transaction, Verve gets better data, better scale, better reach, and tangible AI. I mean, we do a lot in AI, and I already mentioned this is only making us stronger. Yeah, bringing us to significant size or significant size increase. For 2024, we talk about EUR 151 million EBITDA on a pro forma basis, which also gives us, of course, a strong delivery capacity.
And then, maybe on top of that, also to mention, we yesterday also did a capital increase in line with this transaction. It was a directed share issue. It was oversubscribed. We placed SEK 450 million at SEK 16.60 per share. So we're really happy with that. That also, the investors reacted very positive on this transaction. And, yeah, with the capital increase also bring our capital structure in a much nicer position than before. Yeah, and a balanced company I mentioned before. It's really adding to our demand side. We were at 10% demand, 90% supply. We're now with this transaction coming to 30% on the demand side and 70% supply. So really, yeah, a big step forward to our strategic goal of getting more balance between supply and demand. The company has a lot of growth opportunities, especially now with, in the combination with Verve.
I would like to mention a few here. The one is internationalization. As mentioned before, 97% of their revenues are in the U.S. So it makes absolute sense for their products to bring that internationally. We have the network, with Verve, to do that. And, yeah, their strong demand position will also further build the position of Verve in the demand-side in the U.S. Then, connecting supply and demand, as already mentioned, the more equality there is between supply and demand, the more efficient the company gets, the more efficient the whole chain gets. So the customers are profiting from it. That means the advertisers as well as the publishers. So also here we make a good step and have a lot more opportunities to grow our share. Then OpEx synergies.
One thing is just, on the, on the cloud side, there's a lot of potential there to get more efficient. We have released a big contract a few weeks ago, and this would also nicely fit in there. Yeah, there's on the sales side, we want to get more and stronger towards agencies and brands. They have a super strong sales team, so that will also, let's say, yeah, save quite some money on the Verve side where we're starting to build this team. So also in the efficient, on the investment side, or let's say adding more people on the sales side, this will help a lot. Then revenue synergies, of course, more revenue makes it more efficient. And connecting the SDKs from Jun to our SDKs, connecting the platforms, connecting the customers will bring a lot of synergies.
This is a company that we can further grow, or let's say together we can further grow substantially. I would hand over to Paul for the synergies and the performance. Paul.
Perfect. Thank you so much, Remco. So starting here, right away now with the financials, and I'm, yeah, very pleased, basically, to start straight away here with the Jun Group. So we see, that the company has a very strong revenue and EBITDA profile, with well above 50% EBITDA margin and a very strong free cash flow generation. So on the left side, we see that the organic growth, was in 2023 limited given the overall market environment, similar to what we have also seen within the Verve Group. The company is now already growing with a, high single-digit organic growth, year to date, and we expect by also adding very nice revenue synergies, which Remco just explained, to bring that to the same level which we have also within the Verve Group now in 2021, so 21%. While the EBITDA contribution with more than 50%, is really outstanding.
And here also what we see on the right side is that the CapEx with 3% as of revenues is very limited, which means an extremely high free cash flow conversion of 93%-95%, directly adding to our bottom line. And therefore, the value is also extremely high here from a free cash flow generation and is improving our quality of earnings for the whole Verve Group. Then looking into the unique revenue growth and synergy potential, so that's these are really being the no-brainers. On the left side, we see the OPEX synergies, EUR 2 million, EUR 1.5 million from combination of sales, including also some tools which we can shut down, as well as moving them to our cloud contract. Well then, and that's where really the high potential is, additional revenue synergies by cross-selling also our in-app supply as well as video supply.
So that's really for the next 12 months. While that's more for the two to three-year midterm outlook, we are confident that we add another, can add another EUR 30-40 million in regards to revenue synergies, which is pure organic growth by just combining the demand and supply and enabling further cross-selling. And that basically, the next 12 months, the revenue synergies and the OpEx synergies will already lead to an uplift in the EBITDA of EUR 8 million, increasing the standalone EBITDA from EUR 37 million to on a pro forma basis, including synergies to EUR 45 million and increasing the EBITDA margin from 47%-52%. So overall, very strong revenue and cost synergies.
Then looking into the combined financials for 2024, and here we see on the left side, Verve with EUR 360 million revenues and EUR 105 million EBITDA, adding then Jun Group with EUR 87 million revenues and EUR 45 million EBITDA, leads already to our, on a combined basis, to almost EUR 450 million revenues and EUR 151 million EBITDA, which means the transaction is truly transformative, is increasing the EBITDA margins from 29%-34%, and it's adding, on a pro forma basis, 24% revenues and 43% EBITDA. So overall, increasing the size and the profitability of the combined group significantly. That brings us to the combined financials from 2023 to 2025. And here we see that we are growing from 2023 actuals with EUR 322 million revenues and EUR 95 million EBITDA to EUR 480 million revenues and EUR 170 million EBITDA, with an indication of a 10% organic growth.
There's much more possible, on a combined basis, but here we also wanted to underscore, that, roughly 10% organic growth will lead to already a 15% EBITDA growth, and that is in the end the operating leverage, which we have now on a combined basis. So therefore, the outlook of the combined business is also extremely strong with a much higher deleveraging capacity, giving the very high cash EBITDA, which we generate here, after the combination of both companies. That brings us now to the transaction overview, and, that is basically how do we fund the deal. So as Remco, already said, we did with an equity issue, SEK 450 million, which, corresponds to roughly EUR 40 million in equity.
Then we take another EUR 80 million from our cash on the balance sheets, and then we have a deferred consideration of EUR 50 million, which brings us basically to the total purchase price of EUR 170 million. On a net debt side, as we do the equity raise, we basically will have after the deal a net debt of EUR 369 million on a pro forma basis, while the leverage is also immediately decreasing given the very strong EBITDA on a pro forma basis, which then brings us to 2.4x net leverage and 2.8x including the deferred payment. Then looking at the transaction structure and how we want to pay, basically, so we pay EUR 120 million at closing, which is expected for around September 2024. And then there's the deferred consideration, which is not interest-bearing, of EUR 50 million, so EUR 25 million after closing, after 12 months.
Then there's another EUR 25 million after 18 months, and both tranches can be easily paid from the running cash flow of the group in 2025 and 2026, so the deal is fully funded. That brings us to the guidance 2024, and here, on the back of a very strong H124 with a significant organic growth of above 20%, we, in addition to the Jun Group addition, we basically increase our guidance 2024 from EUR 350 million-EUR 370 million revenues and EUR 100 million-EUR 110 million EBITDA to now EUR 380 million revenue, EUR 380 million-EUR 400 million revenues and EUR 115 million-EUR 125 million EBITDA. A very significant increase in terms of revenues and EBITDA already, despite the first-time consolidation, which just happens in September 2024. Therefore, there's an even stronger outlook also for the year 2025 in regards to revenue growth and EBITDA growth.
That brings us also to our midterm financial targets. Given the combined group and the unique growth and yeah also EBITDA synergies, we now increase our EBITDA margin targets from 25%-30% to now 30%-35%, so significantly here. The EBIT margin targets from 15%-20% to now 20%-25%, while on the net leverage side, we have always yeah had the target to be between two and three times, and we now have committed to further delever and have 1.5-2.5 x, and given the already lower leverage now post-transaction. In addition, in addition to the strong free cash flow generation and the very high deleveraging capacity, we are also committed yeah to further delever in in the coming periods and being very confident to do so within yeah short.
That brings us to the attractive journey, and here I would like to hand over to Remco again, to guide us through.
Yeah, thank you, Paul. And, I think, I hope that all the investors know why we are so excited about this deal. It's really transformative for us. And just to summarize some of the points that we went through before, to add an implied 10% growth rate in 2025, the company will generate a joint company will generate EUR 170 million EBITDA and 80% of that being cash EBITDA. The much stronger cash EBITDA will materially improve our quality of earnings and also with that the ability to delever. So that's also what Paul showed, the aim to go below 2.5, so in the range of 1.5-2.5, which fits better in the current environment with higher interest rates, than we had before. Then improving the leverage metrics is expected to also again lower the funding cost.
So it's really an, yeah, positive circle that you get into them, which means that, we can, let's say, when we do the existing debt in a refinancing. Then Verve becomes a global player with direct access to Fortune 500 brands and publishers. That's what we wanted. That's what we wanted to build, and this transaction is really a very big step towards that goal. Then post-deal, post-deal, the skill and the access to first-party data, very important for targeting and also the AI technology are further improved, and our position is further strengthened there. And then combining the above factors will allow Verve to generate material shareholder value over the next years. So we are super happy, and, yeah, I would like to open up for questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Fiona Orford-Williams from Edison Group. Please go ahead.
Good morning, Remco. Good morning, Paul. Congratulations on the deal. I've got a few questions, but I think, probably most importantly, can we just find out from you, please, the cash cost of achieving the synergies that you've outlined? That's the first question. Second question would be about the EBITDA margin on Jun Group is obviously very impressive. You're completely confident, are you, that over 50% is a sustainable margin for them? And obviously that rolls through into the pro forma EBITDA margin. And just a third quick one, do you know where this leaves you in terms of Pixal ate and your market share on the SSP side? Thank you.
Paul, you want to take the first two, and then I can take the last one.
Yeah, so in regards to the profitability, so the company has a very attractive size, and also in regards to the efficient setup of the high budgets, which Remco just outlined earlier, they drive a lot of revenues with big customers and therefore have a very strong, yeah, scale, and that leads basically to a very high EBITDA margin. And in addition, also from the platform cost integration, we have a lot of experience here. So it will be a very plug and play in regards to unlock the synergies and combining the platforms, while we don't expect any high ex-additional cost from onboarding them now. That's more the usual things, which we anyways have in regards to additional stuff which does these integrations.
We would basically expect that this takes 2-3 months to onboard them and to combine the platforms. So yeah, to basically connect them, and then we can start to drive the first synergies within 2025 from January onwards.
Yeah, I hope that answers your first questions, Fiona. Thank you for them. And, then I would take the other one, the market share one. By adding the two companies, the market share will, of course, profit from it, but it will even more profit from it when we start using the synergies. So that means that, yeah, this was kind of, we have been looking at quite a few companies, but the nice thing about Jun is that they're really, doing in-app mobile towards agencies. And, there's a lot of companies that do also, let's say, web and those, other channels to agencies. But for us, in-app is the strongest one. So this is also really paying into our strong strengths on the, on the in-app part. And that's, yeah, should have a very positive effect on the market share as well.
Was it a competitive bid situation, or did you manage to get exclusive negotiating rights?
We had exclusive negotiation rights, and that was a condition we knew the company from before. They had, let's say, they wanted to do the transaction fast. They wanted to get it done before the summer. That was the condition that they let us in on an exclusive basis, but only if we would do the transaction fast. I think we did it super fast. So the team is a little bit exhausted, but no, it was done extremely fast. I mean, let's not forget 21st of June is Midsummer Night also in Sweden, where a lot of people will go on holidays. So also it was in our interest to go very fast on this transaction.
Okay, thank you.
Thank you, Fiona.
The next question comes from David Rosso from Nordea. Please go ahead.
Hi, David Rosso from Nordea Credit Research here. I just have a brief question on the acquisition multiple. It appears to be quite low. Can you add some, some color on that, please? Thank you.
Thank you, David, for the question. And Paul, you want to answer this or should I?
Yes, yes, yes, I can answer on that. So basically, as Remco said, the acquisition for the seller was, yeah, important that the acquisition goes very fast. We could fully commit to that. The company, which is basically currently selling all their non-core assets. That's also what they have announced towards the market. And as we were able to get it through the door before the summer and could fully basically prove that we have the funding available, we could achieve that very attractive pricing, which is 4.6x EV/EBITDA before synergies. But I especially also the synergies, which are being very unique with our very strong mobile in-app supply position, obviously further reduce the multiple to 3.8x EV/EBITDA. And that's basically how to look at it.
Yeah, that we were in a poor position basically to execute on that and therefore create a lot of shareholder value also for the Verve shareholders.
Yeah, and I think what's based in here is really that we have so much experience with M&A and also have a good image in the market when we do M&A so that people know that if we commit to something, that we also go for it.
Thank you, Paul. And Remco, just a brief follow-up. Could you say anything about why it was so important to complete this acquisition so quickly for the seller?
Yeah, the company is, without going into a lot of detail, but it's also in their report. They have a high leverage, and as part of that, they committed to their shareholders to really sell off the non-core assets as Paul already described. In that sense, this was the last substantial one, so they wanted to go fast.
Okay. Thank you. That's all clear.
Yeah,
Thanks.
Thanks, David.
The next question comes from Jörg Frey from Warburg Research GmbH. Please go ahead.
Hi guys. Well, sounds really attractive here. What are we missing? Is there any dependence on key people, any risks there, anything changing in the market structure, any risks that you can conceive, or just some thoughts on, did you have enough time for the due diligence, or did you feel overly stressed?
Jörg, thanks for your question. I can answer that. So we didn't feel very stressed, even though some nights were maybe a little bit short at a certain point. Now we used also external parties to support us with the due diligence. We are experienced ourselves with our due diligence in these kind of cases. So it's, I think a well-oiled machine on our side, for doing this. Did we miss anything? I don't think so. Pretty sure not. The thing of course is, and I mean it's a core non-core asset, and that's maybe good background. It's a non-core asset for Advantage Solutions. And in this market, as we always say, you need to invest. If you don't invest in being in, if you're an AdTech company and you don't invest in the future, it doesn't make sense.
As it's non-core for them, they rather took the cash out, instead of investing. That's where we really see that we can do a lot more. The company has been growing, but it could grow much faster if you, yeah, do further investments in the company or in the combination with us. So in that sense, I think it makes sense for them to, to not have it. If you do ad tech, advertising technology, you need to really go forward and, yeah, and scale matters. So also with this, we get bigger. Standalone, they are super profitable, but also not super huge. Together we are much bigger. So I hope that answers your question.
And maybe also to just add why it also went so fast. I mean, next to the committed disposal program of the seller, the company is well organized. So we have not often seen a so well structured organization. The people, which being on board at Jun are very often worked. They are ready for +5 or +10 years , which also made it very easy in regards to the due diligence to get into the details, very easily and fast. They were extremely well prepared. So from a due diligence perspective, it was really a no-brainer in regards to getting into all the details. And we have not very often seen, yeah, such a well-organized company.
And that will also make it much easier for us in regards to the onboarding, et cetera, because there's not much improvement or something needed, which we have seen sometimes in other transactions. So therefore, a well-oiled machine, and that's maybe also an important aspect. They also have an extremely strong sales team. So they really know how to sell demand-side campaigns. And that will also help us in regards to ramp up our organization very nicely, where we anyways committed to invest to further scale the demand side. And here we now basically have the pole position and can together with them unlock a lot of additional growth potential.
Yeah, and maybe to add one more point, let's say often these companies are very integrated, but it was a super simple structure with a mother company and a subsidiary only in the U.S. That makes things a lot easier. And let's say the only things that the group did for them was accounts payable and legal. And so that makes also carve out super simple.
Yeah, well, do you, does that mean there's not too much upside regarding transitioning from a big organization to a smaller one? Or would you say that, did you still have some potential regarding better incentivation and, well, faster communication lines and things like that?
Yeah, let's say it's as Paul Echt said, it's an efficient company, but we think with the, how to say it, the value lies in the revenue synergies, not so much in the cost synergies, but mostly in the revenue synergies. So the product portfolios and the customer portfolios are really very nice match. And that's where we see the big upside of this transaction.
You mentioned investment needs. What would you, well, first of all, where do you see needs where you as a combined group need to invest? And just a rough idea how much we should pencil in our models?
Yeah, investments on the AI side further. I think that's where we do already a lot. So I wouldn't, but I would leave that to Paul, see a lot extra investments there. And then further ramping up the sales teams, getting also people to really sell these products outside of the U.S., getting more sellers into the, inside the U.S., so really using the structure that's there already to, to further build on that. I think those are some of the important ones, but I would hand over also to Paul, to give, get his view on this.
Yeah, so they basically have also a very strong engineering team, and they have a very strong technology platform, basically especially on the demand side. And by combining that with our very strong supply side platform, we can drive a lot of synergies, but there as we have, they have everything already what they need in regards to the engineering team. We have everything on the supply side. So by combining both efforts, we don't expect additional cost on the combined group basis. So no additional CapEx, where we can unlock a lot of additional revenue synergies. And especially given also that we integrated the platforms on the Verve Group over the last two years by not doing many or don't doing M&A at all. We now have also the capacity basically within our existing engineering teams to fully unlock these synergies, without any additional cost.
Sounds good. So, so congratulations to this attractive deal.
Thank you very much, Jörg.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Yes, thank you very much. Thank you very much for all the good questions. And if there's more, we're of course also happy to answer them. And yeah, as I said, super excited about this transaction. It brings us to a next level. And, we're gonna work on that now. So thank you very much. And we talk in the future.