What happened

Shares of Genius Brands International (GNUS 0.94%) fell on Wednesday after the children's media company announced a major acquisition.

As of 3:45 p.m. EDT, the stock was down more than 19%. 

A downwardly sloping stock chart.

Image source: Getty Images.

So what

Genius Brands agreed to purchase WOW! Unlimited Media for roughly $53 million in cash and stock. The Canadian animation company has a strong presence on popular social media sites such as YouTube and TikTok, which Genius Brands says will help it better appeal to teens and young adults.

The deal is also expected to bolster Genius Brands' profitability. WOW! generated $56.4 million in revenue and $5.1 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) over the past year. That would be a notable increase for Genius Brands, which produced less than $5 million in revenue and negative EBITDA during that time. Genius Brands CEO Andy Heyward said in a press release:

The acquisition of WOW! substantially accelerates the financial growth of Genius Brands, delivering on our promise to shareholders to execute meaningful and accretive acquisitions, as we seek to rapidly consolidate the marketplace and become the foremost producer, broadcaster, and consumer product licensor of high-quality children's entertainment in the world.

The merger is also expected to yield cost savings and other operational efficiencies for the combined company. For example, Genius Brands intends to move its animation production from China to Canada where it can benefit from various tax credits.

Additionally, Genius Brands believes it can better monetize WOW!'s content via its Kartoon Channel! digital network and consumer-product licensing operations.

Now what

Investors, however, appear less excited about the acquisition. Genius Brands' stock price dropped sharply on the news. Shareholders might have been hoping for an even bigger deal, perhaps with a more well-known merger partner. 

Still, if it can successfully integrate WOW!'s operations into its business, Genius Brands could make considerable progress toward reaching sustained profitability in the years ahead.