Kape, a supplier of cybersecurity and internet privacy software owned by Israeli businessman Teddy Sagi, is making a huge acquisition by Israeli standards, purchasing American company ExpressVPN for $936 million in cash and stock. It is the largest acquisition in Kape's history and one of the biggest acquisitions of a foreign company by an Israeli company. Following the deal, Kape will have 6 million paying customers, more than any other Israeli high-tech company.
In March, Kape acquired Israel's Webselenese for $149 million, and in November 2019 it acquired American company Private Internet Access (PIA) for $128 million. Those acquisitions by Kape were among the biggest high-tech deals ever made by Israeli companies.
ExpressVPN, which was founded in 2009 by Peter Borchardt and Daniel Pomerantz, became one the world's leading suppliers of internet privacy solutions over the last decade. It has over three million paying customers in a total of 180 countries, with about half of the customers in the U.S. The company's solutions, which have won many awards, are available for a wide range of operating systems such as iOS, Mac, Windows, Android and Linux, as well as for various routers. They have distribution agreements with giant companies like HP, Nokia and Phillips. The company's earnings stood at $83.9 million in 2017, but they grew to $135.9 million in 2018, $203.9 million in 2019 and $279.4 million last year.
The acquisition enables Kape to significantly expand. The combined company will serve about 6 million paying customers, close to half of them in the U.S. Pro-forma revenues in 2022 are expected to be between $610 million and $624 million, with adjusted EBITDA of between $166 million and $172 million. Thus, Kape will become one of the leading pure players in the consumer market for digital security and privacy solutions, a market that is growing quickly. In terms of workforce, ExpressVPN employs more than 290 workers in about 20 cities worldwide, but the combined company will employ about 730 workers.
The acquisition significantly strengthens Kape's capability to implement its strategic goals and its plans for leveraging its growth, with expansion of its global customer base, increased value of the customer for the product's lifecycle, expansion of its marketing capabilities, leveraging of platforms to acquire customers, maintaining the company's growth through acquisitions, and expansion of its portfolio of products and distribution capabilities. The acquisition of ExpressVPN will be made with cash and stock, and in order to partially cover the cash component that will be paid immediately, Kape will carry out another issuance of stock worth hundreds of millions of dollars.
Ido Erlichman, CEO of Kape, said that "The acquisition of ExpressVPN allows us to place Kape at the forefront of providing the most innovative security and privacy solutions to all consumers around the world, and will allow consumers to regain control of their digital identity and life. We believe that this deal is proof of the strength of our current operations and our growth strategy. The acquisition places us in an ideal position to continue expanding our global foothold in an age in which security and internet privacy have never been more important." During Erlichman's term, Kape made a number of acquisitions in which it invested $1.2 billion in cash and stock.
The payment to the founders of ExpressVPN will be made in three stages: $354 million in cash when the deal is closed; 237 million in shares of Kape that cannot be sold for 24 months from the time the deal is closed; and $345 million in cash in two equal installments, one 12 months after the deal is closed, and the other 24 months after the closing. Kape will fund the third part of the payment through a loan from the company's current syndicate, and through cash that the company generates. The two founders of ExpressVPN will work at the combined company and continue to manage the company that they established under the Kape umbrella. They will hold 14% of the total shares in Kape.