Amazon takes option to invest in Kornit

Gabi Seligsohn

Amazon will receive an option to invest up to $38 million in Kornit Digital, the leader in the online personalized clothing market.

Kornit Digital(Nasdaq:KRNT), a supplier of printing solutions for the textile industry, today reported closer cooperation with online retail giant

Under the agreement signed by the two companies, Kornit Digital will supply printing systems, ink, and support services in the framework of the Merch by Amazon program involving on-demand personalized design of shirts. Amazon did not undertake to order a minimum number of machines from Kornit.

The agreement includes an allocation of five-year options to Amazon to purchase up to 2.93 shares in Kornit (8% of the company's share capital) at an exercise price of $13.05 per share - the average Kornit share price over the 30 days preceding the signing of the deal. The number of options to be exercised depends on the volume of products and services that Amazon buys from Kornit (Amazon will exercise all the options and proceeds from the options will total $38 million if Amazon buys at least $150 million worth of products and services from Kornit).

Kornit has nearly 400 employees. The company announced its first cooperation agreement with Amazon in January 2016, in which Kornit's flagship printer, the Avalanche 1000, was selected for on-demand production of personalized designed clothing in the framework of Amazon's program.

The program bought Kornit's systems over the past year. This program enables independent designers to fill personalized orders, thereby boosting their income from sales of designer t-shirts.

Rapid growth in online clothing sales

The volume of sales in the online clothing market in the US totaled $90 billion in 2015, 20% more than in 2014. The same growth rate is projected for 2016, and Amazon's management has made a strategic decision to take a significant role in this developing market.

Kornit CEO Gabi Seligsohn said, "Our company is the leading player in the online personalized clothing market, and we believe that Amazon's decision to choose us is an excellent indication of this.

Controlled by Fortissimo Capital, Kornit develops digital printers for various types of textiles, such as clothing, curtains, and bedcovers. Founded in 2002, the company completed its Nasdaq IPO in April 2015, raising a gross $71 million at $10 per share, reflecting a $308 million company value. The share has since climbed to a peak of $17 and fallen to a low of $8, with a subsequent recovery. The share's closing price yesterday was $13.95, reflecting a $448 million market cap.

Kornit two months ago published its results for the first nine months of 2016. The company reported $77 million in revenue, 26% more than in the corresponding period in 2015. The company's growth increased to 40% in the third quarter, with revenue totaling $31 million, compared with a total of $46 million over the first two quarters.

Kornit's gross profit margin in the third quarter of 2016 was 44%, and its operating profit totaled $1 million, or $4 million excluding one-time write-offs and expenses in respect of shares and options granted to employees.

Managed by founding partner Yuval Cohen, Fortissimo, a private equity fund, acquired a controlling interest in Kornit in 2011 with a $16 million investment. Fortissimo held a 70% stake in Kornit before the latter's IPO, which was later diluted. Fortissimo's current stake is 48.5%.

Kornit last week published a shelf prospectus for a secondary offering, as part of which it listed Fortissimo shares for trading, enabling the company to sell them on the market when it wishes. Some of the shares allocated to Kornit CEO Gabi Seligsohn were also listed for trading. Fortissimo does not plan to sell all this holdings now; only some of its shares will be sold. Fortissimo believes that Kornit's growth in the coming years will increase its value and further improve the fund's profit on its investment in Kornit. Among other things, the current sale is designed to bolster the number of Kornit shares floating on Nasdaq and make them more marketable, while improving Fortissimo's liquidity.

Published by Globes [online], Israel Business News - - on January 11, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Gabi Seligsohn
Gabi Seligsohn
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