Through the deal, Kape joined forces with a major player in the US cybersecurity space, catapulting itself in the process into a powerful position in home data security on both sides of the Atlantic.
The timing was pretty nigh spot on as well, as the deal concluded in December just a couple of months or so ahead of the start of coronavirus lockdowns in the US and Europe that have enforced online working from home for millions of people.
As videoconferencing giant Zoom has discovered, security is critical when people have to undertake confidential and sensitive work at home.
Enforced homeworking has sparked a surge in new sign-ups for Kape according to Ido Erlichman, its chief executive, with volumes growing by 10-15% on average in each week of the crisis so far.
Investors, too, have quickly recognised the merits of the deal.
Kape shares currently sit just shy of their all-time high, a reflection of the strong organic growth and the fact that the integration of the PIA deal has gone very smoothly, suggests Erlichman.
The consideration for PIA was U$127mln in cash and shares, with the owners of PIA ultimately holding a c.22% stake in the enlarged group.
Being part of a listed entity was a key reason PIA chose Kape as a partner allowing people to join Kape’s journey in protecting people’s digital privacy, he adds, though there were other reasons as well.
The two companies share a similar philosophy in protecting customers’ data and security, Erlichman adds.
Both only sell software, not people’s data or advertising.
People remain unaware of how valuable a commodity their data is, he notes.
“The majority do not understand how much is going on in the background through the buying and selling of digital information.
“There is a large market of companies that trade digital info.
“From the time you switch on your phone or desktop in the morning until the time you go to bed at night, around 800 organisations will have accessed your data,” he says.
That helps explain why the age profile of a Kape customer is a youthful 15-35.
Young people understand better how the digital world works, says Erlichman, and are much more proactive about finding a solution that gives them control on how, when and where they share digital information.
Kape scores well because its proposition is very straightforward, he adds.
“Customers understand our only job is to help them protect their digital information, so they are very loyal.
“Our retention rates are high and subscribers stay with us for a very long time,” he says.
Following the merger, which added PIA’s 1.2mln users, Kape now has a customer base of 2.5mln.
The US is its largest market, though the UK, Western Europe, Australia and Japan are also important areas.
Strong organic growth
Erlichman says even before the merger its subscriber growth rate was 40% in 2019, but with PIA there is scope potentially to do even better.
The US group attracted subscribers purely through organic growth, whereas Kape is focused on user acquisition.
Erlichman believes it can add substantially to PIA’s growth through the application of its own techniques.
Collaboration between the two companies elsewhere is already bringing rewards, with two research and development projects completed including a new cyber encryption module for PIA.
Forecasts for the year to December 2020 are for revenues to rise to between US$120-123mln with adjusted EBITDA of between US$35mln to US$38mln.
Cashflows are also forecast to be strong with the software-as-a-service model generating monthly payments and c.US$100mln of future revenues to come only from renewals.
Kape also agreed a US$70mln loan facility with Barclays, Bank of Ireland and Citi in March.
At the current price of 178p, AIM-listed Kape is valued at £270mln or about three times forecast revenues, which highlights that it is still in a very difficult stock market backdrop even with a healthy share price.
Longer term, more acquisitions are on the cards once PIA has bedded down fully, but Erlichman believes there will be plenty of organic growth as well.
People are starting to recognise the need to protect their data better, he says and the plan is to develop one dashboard to control all the digital security and privacy features - secure Wi-Fi, encrypted search engines, desktop privacy and digital storage.
These are the solutions of the future and the merger with PIA is just the beginning.