California tech firm acquires Little Rock’s Inuvo for $75.5 million

Thinly traded Inuvo Inc. of Little Rock entered a stock-and-cash deal to be acquired by privately held Conversion Technologies Inc. of Newport Beach, Calif., in a deal valued at $75.5 million, the two companies announced Monday (Nov. 5).

Under the terms of the deal, ConversionPoint will issue 0.18877 shares of its common stock for each one share of Inuvo common stock, or approximately 6.4 million shares altogether. The West Coast tech firm will then issue cash in the amount of 45 cents for each one share of Inuvo common stock, which amounts to nearly $15.3 million in total.

In addition, ConversionPoint will issue 0.9840 shares of its own common stock for each one share of subsidiary ConversionPoint Technologies Inc. common stock, or approximately 15.6 million shares in total. The $1.77 estimated value per share of ConversionPoint common stock to be issued in the acquisition is based upon ConversionPoint Technologies’ recent $15 million private offering that valued ConversionPoint Technologies’ common stock at $9.21 per share, resulting in an estimated equity valuation of $146 million.

“Inuvo’s technology and product offerings makes our combination very attractive in terms of immediate cross-selling opportunities,’ said ConversionPoint CFO Raghu Kilambi. “The scale of the combined operations coupled with the identified synergies, focused on the eCommerce market, is anticipated to provide attractive upside revenue and margin expansion opportunities as well as a unique capital market story.”

Added Inuvo COO Trey Barrett: “We have identified a number of specific near-term opportunities, including upselling Inuvo’s high-margin AI powered IntentKey media to ConversionPoint’s existing enterprise customers and online retail partners. We also expect to reap significant benefits from integrating ConversionPoint’s retail brands into Inuvo’s ValidClick platform, creating a new traffic acquisition source for ConversionPoint clients, and utilizing ValidClick’s advertising inventory throughout our customer experience.”

Robert Tallack, CEO of ConversionPoint Technologies, will become chief executive of the combined companies, and Richard Howe, chairman and CEO of Inuvo, will become chairman of the combined companies.

As of today, about 29% of Inuvo shares are owned by company insiders, including former Acxiom executives Howe and Charles Morgan. Inuvo first moved its corporate headquarters from New York City to Conway in early 2013. Two years later, the Conway-based internet marketing firm and its closely-aligned sister company, First Orion, moved their corporate headquarters to Little Rock’s Creative Corridor in the city’s River Market district.

At the time, both Morgan and Howe said the move to Little Rock made sense in terms of necessary amenities, space and location for both fast-growing business partners, including plans to hire over 100 workers in high-paying, high-skilled technology-related positions. Morgan is CEO of First Orion, the parent company of PrivacyStar.

Earlier this summer, First Orion held a ceremonial ground-breaking event to move its planned global headquarters across the Arkansas River to North Little Rock’s downtown Argenta district. Construction on the 60,000 square building began in late August and the project is expected to take 12 months to complete.

“We are helping to transform the region into a prominent technology hub and we are honored to be such a big part of the Argenta Plaza where we will not only build our technology but also build careers,” said Morgan. First Orion said it is actively recruiting new employees for positions in software development, analytics and customer management for PrivacyStar, which offers a mobile app for blocking unwanted phone calls from spammers and telemarketers.

According to company officials, Inuvo will operate as a wholly-owned subsidiary of ConversionPoint Holdings and is expected to maintain its offices in Little Rock and San Jose, Calif. ConversionPoint will operate as a wholly-owned subsidiary of ConversionPoint Holdings and is expected to maintain its offices in Newport Beach and Emeryville, Calif., and Minneapolis.

From its current headquarters at 500 President Clinton Avenue, Inuvo has had difficulty turning a profit with its patented technology that connects advertisers with consumers across the internet, mobile devices and other devices. Through the first half of 2018, the Little Rock internet marketer had revenues of $39.8 million and losses of $2.24 million.

Over this same period, Yahoo! And Google accounted for more than 70% of the company’s customers and accounts receivables. “While this strategy creates a concentration risk, we believe that it also provides upside opportunities including access to hundreds of thousands of advertisers across geographies …,” Inuvo said in its recent 10Q quarterly securities filing.

Despite its string of unprofitable quarters, Inuvo insiders and shareholders will get a premium payoff based on the company’s previous closing price of only 41 cents on Friday (Nov. 2, 2018) on the Nasdaq stock exchange. In Monday’s early session, Inuvo’s shares were close to breaching the $1 market in trading, spiking a whopping 136%, or 56 cents at 97 cents.

As of today, all Inuvo’s directors and executive officers, as well as ConversionPoint Technologies stockholders owning 70% of ConversionPoint Technologies’ outstanding shares, have signed support agreements in favor of the acquisition. According to the latest Form 4 filing with the federal Securities and Exchange Commission (SEC), Howe held 974,808 shares of Inuvo’s stock after disposing of 38,465 at a strike price of 69 cents per share on Aug. 14.

In his role as Inuvo director, Morgan held 2,022,239 shares of Inuvo stock after acquiring 9,020 shares at a price of 68 cents per share on Aug. 3. Several other Inuvo executives and board directors are also major stockholders of the company’s shares.

The close of the deal, which is expected to occur during the first quarter of 2019, is subject to customary and other closing conditions, including a requirement that ConversionPoint raises a minimum of $36 million of gross proceeds from the issuance of equity or debt or both. A portion of those proceeds will be used to fund the cash portion of the acquisition transaction, as well as the approval of the stockholders of ConversionPoint Technologies and Inuvo.

After the buyout of Inuvo, the list of publicly-traded companies in Arkansas will continue to dwindle. Earlier this year, El Dorado-based Deltic Timber was the latest Arkansas company to go private when it was acquired by West Coast timberland operator Potlatch Corp. in a deal valued at $3.3 billion.

In April, Fayetteville-based Arvest Bank’s $391 million acquisition of Bear State Financial Inc. of Little Rock cleared its last hurdle after the Federal Reserve approved the Aug. 22 deal with a few key stipulations.