Wednesday, September 28, 2022
HomeValue InvestingClark Road Worth: Digital Media Options: Damaged deSPAC, MBO Supply

Clark Road Worth: Digital Media Options: Damaged deSPAC, MBO Supply

One other fast thought — hat tip to Writser once more for pointing me on this route — Digital Media Options (DMS) ($135MM market cap) is a “technology-enabled digital efficiency promoting options” firm that got here public in July 2020 via a SPAC, Leo Holdings Corp (LHC).  From what I can collect, DMS will get allotted advertising and marketing spend from their purchasers, runs a digital marketing campaign after which delivers heat leads or precise prospects to their shopper relying on the association.  DMS will get paid a share of that buyer’s lifetime worth (“LTV”) primarily based on the promoting shopper’s fashions.  Whereas this is not an awesome enterprise, DMS is cyclical primarily based on advertising and marketing spend (having a down yr in 2022), it does not appear to be a rip-off or overrated science honest venture like different deSPACs of latest classic, DMS is extra a marginal-to-average enterprise with potential long-term tailwinds.

Like nearly each different deSPAC, DMS got here to the market with inflated expectations, they initially guided to $78MM EBITDA in 2021, however solely delivered $58MM.  DMS began 2022 with flat steering of $55-60MM EBITDA, however now solely anticipate $30-35MM as a consequence of wage inflation hitting their value construction (500+ workers), advertising and marketing budgets getting slashed and LTV fashions being adjusted down of their core auto insurance coverage market (Allstate and State Farm are two of their largest prospects).  Administration expects to return to progress in 2023.

DMS is founder led, the corporate was began in 2012, the three co-founders are nonetheless within the c-suite as we speak and personal 35.8% of DMS via their “Prism Information LLC” funding automobile. In 2016, DMS took on a PE funding from Clairvest, who nonetheless owns 27.5% of DMS, and rounding out the highest 3 holders is Lion Capital at 11.6% possession, Lion was the sponsor of the SPAC.  In whole, these three corporations personal 75% of DMS, the remaining 25% has little or no institutional possession and is probably going held by retail holders who had been caught up within the SPAC mania.

Essentially no difference between A and B shares

On Monday 9/8, through Prism Information, administration made a non-binding supply to accumulate the entire publicly traded Class A shares for $2.50/share, a 121% premium from the place the inventory closed the earlier Friday.  In their letter, they point out that Clairvest and Lion “are more likely to comply with take part” alongside Prism, leaving solely 25% of shares needing to be bought, or about $40MM.  The supply shouldn’t be topic to a financing situation (vital in as we speak’s market), however DMS does have $26MM money on its steadiness sheet and Prism has $50MM in pre-committed financing from B. Riley (RILY) to finish the transaction.  

The supply values the minority curiosity at someplace round ~10x doubtlessly trough EBITDA, once more administration expects to return to progress in 2023 (they’re the most effective positioned to know if there’s certainly an inflection) so this might be an opportune time for them to take it personal once more.  In August 2021, the corporate introduced they had been exploring strategic options, on the final two convention calls, CEO Joe Marinucci (the signatory on the Prism supply letter), has said they had been “hoping to have an replace as we speak” relating to strategic options, this supply is probably going the top outcome.  Marinucci would know the place third events affords had been for the enterprise earlier than providing $2.50 to the board, that is seemingly the most effective supply and the unbiased board members will take it given there aren’t any vocal or important minority shareholders.

Shares closed as we speak at $1.94/share, a 28% unfold to the Prism supply.  Sure, there’s important draw back given the place DMS traded earlier than the supply, however there aren’t any shareholders to place up a battle and certain that is the most effective supply after the corporate ran a course of.  In any other case, I feel the unfold is huge as a result of it’s a low float former SPAC.  I purchased a smallish place.  Given the variety of deSPACs, I anticipate this being an identical fruitful searching floor because the “damaged/busted biotechs”, please ship me any others that sound or really feel like this one.

Disclosure: I personal shares of DMS


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