Shares of Chicken Soup for the Soul Entertainment jumped 6.4% in early trade on Friday as the company agreed to acquire the film and television assets of Sonar Entertainment for an undisclosed amount. The acquisition is expected to close in thirty days and is likely to accelerate the development of service offerings of the advertising-supported video-on-demand (AVOD) network.
Chicken Soup for the Soul Entertainment’s (CSSE) CEO, William J. Rouhana Jr. said, “The Sonar Entertainment assets are a perfect fit with our objective of building the industry’s best AVOD offering. This acquisition will not only have immense strategic value, positioning us to launch AVOD networks with a critical mass of proven content that fits our desired audiences, but will also give us ownership of several franchise television series and add proven television executive talent.”
“Finally, we believe the transaction will be extremely efficient for our shareholders, with a structure that provides for the net cost of the assets being fully recovered as we create value for the seller,” Rouhana added.
The acquisition of Sonar assets will lead to the expansion of CSSE’s original television content development pipeline, provide a quicker way for CSSE to grow its television production and distribution internationally, and could lead to CSSE launching additional AVOD networks. (See Chicken Soup for the Soul Entertainment stock analysis on TipRanks)
CSSE also said the consideration paid for the assets would be dependent on the success of the assets acquired and the advance payment paid to Sonar will be “recouped by Chicken Soup for the Soul Entertainment upon the sale or licensing of certain television rights”.
The acquisition of Sonar’s film and television assets will also result in Sonar acquiring a 5% stake in a new AVOD network.
CSSE expects to earn $15 million in revenues in the first year after the closing of the acquisition, with Sonar assets expected to contribute $10 million in EBITDA. From 2022 onwards, CSSE anticipates that Sonar’s television content development pipeline will contribute significantly to its revenues and EBITDA.
On April 1, DA Davidson analyst Tom Forte raised the price target from $28 to $34 and reiterated a Buy rating on the stock. Forte said that the company’s original and exclusive content made up 18.4% of total ad impressions last year while the company’s original movie, Willy’s Wonderland, was #1 on the iTunes movies chart in the Horror genre.
Overall, the rest of the Street is bullish on the stock with a Strong Buy consensus rating based on 4 Buys. The average analyst price target of $34.75 implies that CSSE shares have approximately 12.5% upside potential to current levels.