DG FastChannel Buys Vyvx Ad Biz

DG FastChannel is tightening its grip on the digital ad delivery market by acquiring its major competitor, the Vyvx advertising services business, from Level 3 Communications for $129 million in cash.

Dallas-based DG FastChannel has entered a definitive agreement with Level 3 to buy the Vyvx ad unit, which delivers commercials both via file-based satellite distribution and traditional “dub-and-ship” tape-based methods. DG FastChannel would take over Vyvx’s ad distribution, post-production and related operations, including offices in New York, Chicago, Delaware, Memphis and Los Angeles, and a standalone network operations center in Tulsa. Level 3 will retain ownership of the larger Vyvx fiber-distribution business, which backhauls live feeds for sports coverage and major news events. The deal is expected to close in the first quarter of 2008, pending regulatory approval.

DG FastChannel has been working steadily over the past few years to consolidate the file-based content-delivery market, despite some financial ups and downs that included a Nasdaq delisting notice in early 2006. The former DG Systems acquired competitor Media DVX for $10 million in April 2005, then merged with privately held FastChannel Network last year in a tax-free, stock-for-stock transaction worth $36 million. In 2007, it has acquired the advertising-distribution business of video post-production and duplication firm Point.360 for $34 million in stock, and syndicated-content delivery firm Pathfire for $16 million in stock.

To help fund the Vyvx deal and refinance existing debt, DG FastChannel has obtained a financing commitment from BMO Capital Markets for a six-year, $145 million senior credit facility and a two-year, $65 million senior unsecured bridge loan. DG FastChannel, which had net debt of $36 million at the end of the third quarter, says the close of the Vyvx deal will leave it with pro forma net debt of roughly $170million.

Acquiring the Vyvx ad business should help DG FastChannel expand its delivery of high-definition commercials, says DG FastChannel Chairman/CEO Scott Ginsburg. It will also better position the company to deliver ads to the Internet, mobile devices and public displays, which Ginsburg calls the “second and third screens” for TV commercials.