ConversionPoint Technologies Inc. made quite a statement last week.
The Newport Beach e-commerce company is spending $75.5 million to buy artificial intelligence service provider Inuvo Inc. (NYSE: INUV) in Little Rock, Ark.
It aims to go public. And by the way, it intends to compete against Amazon.com.
The combined companies will generate about $150 million to $160 million in annual sales, ConversionPoint Chief Executive Robert Tallack told the Business Journal.
“That’s a substantial business,” he said. “That’s a big, exciting business.”
Inuvo’s 2017 sales totaled about $80 million, according to regulatory filings. ConversionPoint reported about $50 million last year.
The buy links a fast-growing, upstart e-commerce provider of advertising services with an AI company that specializes in identifying and analyzing consumer behavior.
“We were fortunate that we happen to meet at the right time, because we were looking for some type of data source or information source,” said Tallack, who will assume the same role in the combined company.
Credit an assist to investment bankers at Canaccord Genuity Group Inc. who introduced Inuvo Chief Executive Rich Howe to ConversionPoint executives in April.
Three Bagger
The announcement caused Inuvo shares to more than triple from 41 cents to $1.34.
Under the deal, each share will be exchanged for 45 cents in cash and a share of privately held ConversionPoint that the companies said is worth $1.77.
Inuvo shareholders will own 29% of ConversionPoint after the deal closes.
At press time, Inuvo’s market cap was $38 million. ConversionPoint Technologies said a recent $15 million private offering valued the company at $146 million.
The closing of the transaction includes a stipulation that ConversionPoint raises $36 million in equity or debt to fund the cash portion of the deal, which is roughly $15.3 million.
“We’re highly confident in our ability to execute on that plan,” Tallack said.
The company intends to file a Form S-4 with the Securities and Exchange Commission to register its common shares issued in the acquisition and apply for a stock listing on the Nasdaq and the Toronto Stock Exchange.
The deal is scheduled to close in the first quarter.
IntentKey
Inuvo’s AI technology was developed by University of California-Los Angeles professor Vwani Roychowdhury. It emerged from near bankruptcy in 2009 when Howe took over the company.
“I was brought in to build a new business by the largest shareholder, William Blair,” the Chicago-based investment bank, Howe said.
Last week, the company reported third-quarter revenue fell 17% to $16.8 million; its net loss widened from $986,171 year-over-year to $1.44 million. Howe attributed the decline to a strategic shift into a higher-margin business that effected a sales decrease “faster than we anticipated.”
ConversionPoint, established three years ago in Irvine, was ranked 93rd on the Inc. 5000 list of the fastest-growing companies in the U.S., with $50 million in revenue last year, up 567% from 2014.
Its customers include major brands, such as Canon Inc., Logitech International S.A. and Nikon Corp.
Perhaps more importantly, its e-commerce engine has been integrated into websites operated by online giants Walmart Inc., Best Buy Co. and Office Depot Inc., among others.
ConversionPoint coveted Inuvo’s high-margin AI-powered IntentKey product, which it plans to upsell to customers. The technology is used by several Fortune 500 companies to help attract consumers to specific landing pages or to take action.
“That is what makes our technology way more powerful, in both understanding of you and as a messaging tool to get you interested in whatever product,” said Howe, who will be company chairman.
IntentKey has had several recent new client wins, “a top insurer, a global audio brand and a leading online loan marketplace,” the company said in its quarterly report.
The Amazon Challenge
The companies’ statement announcing the acquisition said the AI platform would “create a competitive eCommerce solution for major non-Amazon channels, such as Shopify, Big Commerce and Walmart.com.”
Amazon has “incredible data on their customers. They have great insight, great predictability and algorithms,” Tallack said. “We will be able offer similar data, insights and actionable information so that our brands can customize experiences for their shoppers.”
The combined company will have more than 700 brand customers and almost 100 online retail partnerships. The two firms have raised or invested more than $50 million in their technology platforms and control 15 issued U.S. patents and 12 pending patents.
ConversionPoint will acquire Inuvo’s 67 employees, who are to remain in Little Rock and San Jose.
“We’re really grounded in mathematicians, engineers and analytics people,” Howe said.
ConversionPoint has grown employment to 100. A little more than a dozen are based at its new 9,000-square-foot headquarters at 840 Newport Center Drive. Its other offices are in Minneapolis and Northern California’s East Bay.
Inuvo’s board of directors and executive officers, as well as ConversionPoint stockholders who own 70% of outstanding shares, approved the deal. Shareholders include Menlo Ventures, Granite Ventures and IBM.
