Chyron’s Hego Acquisition Shifts Graphics Market on Both Sides of the Pond

In a move that drastically affects the broadcast-graphics market in both North America and Europe, Chyron has signed a definitive agreement to acquire the Hego Group. With the acquisition, Chyron, which already claims more than 90% of the graphics market in North American mobile-production trucks, adds a number of key data-visualization elements to its product portfolio, including Hego’s AKI Paint telestration, Virtual Placement, and other image/player tracking applications.

“There is already a major installed market [in North America] where we can now introduce upgrades and further developments, as well as further opportunities in other regions,” says Chyron President/CEO Michael Wellesley-Wesley. “It makes all the sense in the world to join together. In addition, Chyron has all the sales and support structure already in place to support the sports market. It’s really a natural move.”

The combined company will be rebranded as ChyronHego. Though already unanimously approved by Chyron’s board of directors, the transaction is still subject to approval by Chyron shareholders and is expected to close in the second quarter. At the closing of the transaction, Johan Apel, chairman/CEO of Hego Group, will be elected to Chyron’s board of directors and will be appointed president and COO of ChyronHego. Wellesley-Wesley will remain as ChyronHego CEO.

What It Means for Chyron
Chyron, which revealed Monday that its 2012 4Q revenue was down 9% and its overall 2012 revenue was off 4% from 2011, hopes that the acquisition will provide a much-needed shot in the arm leading into the upcoming NAB Show in April.

In addition to Hego’s product portfolio and burgeoning position in the U.S. (the company’s tools are already a fixture on several Fox Sports’ Daytona 500, NFL, and MLB postseason telecasts just 12 months after entering the North American market), Chyron can now boast a stronger foothold in Europe with Hego’s Stockholm headquarters and various locations and growing number of clients throughout the continent.

“Although we have expanded quite nicely internationally — especially in the European area — most of our revenues are still generated in North America,” says  Wellesley-Wesley. “And, with Hego having in excess of 100 people in the Nordic countries, Central and Eastern Europe, and the UK, and they recently had a big win in Germany with the Bundesliga, I think you will see a strong contribution from the combined company coming out of Europe.”

Wellesley-Wesley adds that Latin America, where Chyron has already been successfully offering its products in tandem with Hego systems, represents a region with the “potential for significant expansion in the sports market.”

What It Means for Hego
For Hego, the deal is expected to provide more resources and the ability to expose its products to Chyron’s widespread base of freelance users.

“There are tremendous opportunities to join our technologies together since our products tie in directly with the more traditional Chyron CG environment,” says Hego U.S. President Kevin Prince. “It also allows us to build out our freelance pool of users, of which Chyron obviously has quite a few. It creates a very natural talent pool for us to better support the U.S. market.”

Hego’s rapid growth in the U.S. over the past year stretched the company’s resources, an issue that is no longer expected to be a problem with Chyron’s backing.

“For Hego, this also gives us more access to both North and South American markets,” adds Prince. “Clearly, the U.S. market is the crown jewel, but the speed of adoption of [Hego products] could potentially put a tremendous strain on both our local services and the ability for Sweden to support us. So this merger is almost like a knight in shining armor coming out of the fog for us. It allows us to capitalize on the support structure and team that Chyron already has.”

What To Expect at NAB and Beyond
Although both companies provide graphics systems, they predominantly  address different levels in the graphics ecosystem, making the two product lines rather complementary, with little overlap. As a result, Wellesley-Wesley does not see significant layoffs as a result of the merger.

“We are in the process of putting together the optimal management and organization structure in real time right now, so it is difficult to give a categorical answer to [whether or not there will be layoffs or staffing changes],” he said. “But what I would say is that the thinking behind this merger is to create a growth company. This merger is not driven by the desire to cut costs or lay off people. It’s all about creating new growth opportunities.”

Both companies will exhibit at Chyron’s NAB booth location (SL1010), while Hego’s previously established location (SL8027) will be used as a whisper suite to tease upcoming products to selected customers.

Breaking Down the Numbers
Officially, the transaction will take the form of a stock transaction whereby Chyron will issue a number of shares of common stock, which will represent 40% of its aggregate shares of common stock outstanding, including certain outstanding options, after the closing, in exchange for all of Hego’s outstanding capital stock. Upon the achievement of certain revenue milestones during 2013, 2014, and/or 2015, Hego’s shareholders will also be entitled to receive additional shares of Chyron common stock such that the total number of shares issued in the transaction is equal to 50% of the aggregate shares of Chyron common stock outstanding, including certain outstanding options, after the closing.

Hego’s shareholders will also be entitled to appoint one other member to Chyron’s board of directors. Morpheus Capital Advisors acted as exclusive financial advisor and provided a fairness opinion to Chyron’s board of directors that the transaction is fair to Chyron and its shareholders from a financial point of view.

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