Sheffield-based data science and marketing agency Jaywing has agreed a deal to acquire marketing software development business Midisi.

Midisi owns the award-winning intellectual property rights for the Decision software, which allows clients to automate Pay-Per-Click advertising management.

Jaywing currently sells Decision to clients via a licensing arrangement with Midisi, which generates revenues of approximately £460,000 per annum from just six clients.

Revenues are currently subject to a licence fee of 50 per cent of the gross revenues to Jaywing from Decision which are payable to Midisi.

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The acquisition would enable Jaywing to take full ownership of the IP for Decision and provide a core platform for establishing an in-house research and development unit within Jaywing to develop and introduce new technologies to solve client challenges.

The initial consideration for the acquisition is £400,000, to be paid from Jaywing’s existing cash resources, plus excess cash of £845,230.

Further fixed payments totalling £1.4m will be paid at six-monthly intervals over 42 months, plus an additional performance-related earn-out payable at six-monthly intervals between months 13 and 49, funded out of planned cashflows generated from Decision revenues.

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The earn-out relates to revenues generated from Decision, and the maximum earn-out payment is capped at £3.2m.

Following the acquisition, the incremental revenue contributions delivered by Decision are estimated to be at least £5.7m over 42 months, based on planned growth in the client base and enhancements to other existing Jaywing services. This would generate earn-out payments totalling £1.7m.

For its financial year ended  April 30,  2022, Midisi generated revenues, EBITDA and profit before tax of £231,849, £149,169 and £146,411 respectively, and as at 30 April 2022, had gross assets of £934,223.

Andrew Fryatt, chief executive of Jaywing, said: “Digital marketing has now overtaken all other forms of marketing spend in the UK, and this acquisition enables Jaywing to significantly enhance its automation and use of AI, which gives us a strong advantage in this market.

“The acquisition will be earnings-enhancing from the outset, with the removal of the existing licence fee arrangement, and offers huge potential for accelerating growth over the next few years.”

Jaywing works with a number of blue chip clients, including Castrol, PepsiCo, Mazda, HSBC and Yorkshire Water.

The company employs 300 people in the UK and Australia.