Kingsway Financial Services (KFS) M&A Announcement summary

Deal rationale and strategic fit

• Acquisition targets a leading IT managed services provider with strong recurring revenue, high client retention, and low churn, aligning with a strategy to acquire asset-light, high-margin service businesses in growth industries.

• The acquired company operates in a sector with double-digit projected CAGR, serving over 800 clients and demonstrating high customer loyalty.

• Image Solutions expands the acquirer's Xcelerator platform with a capital-light, scalable business model in a stable, growing market.

Financial terms and conditions

• Purchase price was $19.5 million, funded by $11.4 million in cash and $7.75 million in debt financing from Avidbank, with additional transaction expenses and working capital adjustment.

• Valuation equates to 2.3x revenue and 6.3x adjusted EBITDA, with the business generating $9.8 million in revenue and $3.1 million in EBITDA for the twelve months ended June 2024.

• Transaction structured as a purchase of all issued and outstanding membership interests in Image Solutions.

• Cash portion funded through Class B Preferred Stock issuance, KWH loan draw, and cash on hand; debt is non-recourse to the acquirer.

Synergies and expected cost savings

• Integration into the acquirer's business system playbook is expected to drive process improvements, KPI establishment, and business development capabilities.

• Image Solutions adds $9.8 million in annual unaudited revenue and $3.1 million in annual unaudited adjusted EBITDA, expected to be immediately accretive.

• Integration expected to enhance recurring revenue base and margin profile.