Home Analysts Analyst: DG Unlikely To Get A Better Bid Than Rival Extreme Reach

Analyst: DG Unlikely To Get A Better Bid Than Rival Extreme Reach

SHARE:

DG and Extreme ReachDigital ad management provider DG will likely face serious questions from its shareholders amid rumors that the company rejected a $20 dollar per share bid from video ad services company Extreme Reach.

While Irvine, TX-based DG possesses some advantages in the digital marketplace, particularly thanks to last year’s $414 million acquisition of ad tech firm MediaMind, which added a number of sales offices and expanded its global reach. But that deal, along with the purchase of Enliven Marketing Technologies four years ago, has also contributed heavily to DG’s heavy debt load, which limits its appeal to other potential buyers and lenders.

Extreme Reach’s offer, backed by PE firm Providence Equity Partners, according an unidentified source cited by Reuters, was valued at $550 million. DG spurned the bid from Extreme Reach over anti-trust concerns, though sources AdExchanger spoke to doubted that as a reason, saying that the two companies combined annual revenues from TV distribution are in the $300 million range (roughly $450 million if MediaMind and internet ad dollars are factored in), suggesting that it was too small to register with regulators, noted Mark Zgutowicz, a senior research analyst for Piper Jaffray.

There are obvious complements, especially in the area of the connected TV ad serving, between the hardware-based DG and the cloud computing services from Extreme Reach, which is headed by former executives with Fastchannel, which merged with DG in 2006. (DG eventually dropped Fastchannel from its name.)

In assessing the prospects of the two companies,  Piper Jaffray’s Zgutowicz told AdExchanger, “This is a two-player race and a zero sum game.”

“There’s competitive fire between these two,” Zgutowicz added. “But I am surprised the bid was rejected. If you’re a shareholder, I think you would question the move. There isn’t another potential bidder who can match that price, and in our view, unlikely even at the $12- $13 level. There is no one [in the space] that can bring the kind of immediate synergies that an Extreme supported deal can. DG has about $460 million in debt. So if you’re going to make a bid at $12-$13, you’ll have to write a check for $350 million on top of that.”

At the moment, DG appears to be only entertaining offers from PE firms like Bain Capital and, according to a Bloomberg BusinessWeek report, investment bank RDG Capital, which already has a 4.9 percent stake in DG. (DG declined to address these reports, saying it does not respond to “market rumors or speculation”; Extreme Reach representatives did not return a message seeking comment.)

But Zgutowicz said he was “hard-pressed to believe a private or strategic buyer would be able to create synergies and scale efficiencies without Extreme’s leading low-cost cloud-based technology, which has essentially destroyed scale efficiencies in DG’s TV distribution business.”

So what about DG’s MediaMind? Doesn’t that contribute enough of a value proposition on top of DG’s TV distribution in its rivalry against Extreme Reach? Not really, said Zgutowicz, since internet accounts for only 15 percent of DG’s total EBITDA compared to 85  percentDG gets from TV .

“Extreme is building the same online distribution capabilities in house,” the analyst said. “MediaMind has a bigger name, but DG already overpaid for that after seeing revenue growth run into a wall in Q1 at MediaMind. The only value MediaMind brings to DG is if they could synergize with their existing TV sales channel (which is what DG professed when the acquired it), but they can’t because TV and online is bought by different people today at agencies. So its just another business running alongside TV, which DG adds very little value to.”

By David Kaplan

Must Read

How Should Advertisers Navigate A TikTok Ban Or Google Breakup? Just Ask Brian Wieser

The online advertising industry is staring down the barrel of not one but two potential shutdowns that could radically change where brands put their ad dollars in 2025, according to Madison and Wall’s Brian Weiser and Olivia Morley.

Intent IQ Has Patents For Ad Tech’s Most Basic Functions – And It’s Not Afraid To Use Them

An unusual dilemma has programmatic vendors and ad tech platforms worried about a flurry of potential patent infringement suits.

TikTok Video For Open Web Publishers? Outbrain Built It.

Outbrain is trying to shed its chumbox rep by bringing social media-style vertical video to mobile publishers on the open web.

Privacy! Commerce! Connected TV! Read all about it. Subscribe to AdExchanger Newsletters

Billups Launches Attention Measurement For Out-Of-Home

Billups, a managed services agency that specializes in OOH, is making its attention measurement solution and a related analytics dashboard available for general use.

US District Court for the Eastern District of Virginia, Alexandria

The Google Ad Tech Antitrust Case Is Over – And Here’s What’s Happening Next

Just three weeks after it began, the Google ad tech antitrust trial in Virginia is over. The court will now take a nearly two-month break before reconvening for closing arguments right before Thanksgiving.

Jounce Media's Chris Kane at Programmatic IO NY on Sept. 25, 2024.

The Bidstream Is A Duplicative, Chaotic Mess – But It Doesn’t Have To Be That Way

Publishers are initiating more and more auctions – but doesn’t mean DSPs are listening to more bids, according to Chris Kane.