Newly Public, Kleiner-Backed RMG Networks on Why It Chose a Reverse Merger

As of this morning, Kleiner Perkins Caufield & Byers has a new, publicly traded company in its portfolio: San Francisco’s RMG Networks, a digital signage media company that has raised $20 million from Kleiner, DAG Ventures, and National Cinemedia since its 2006 founding. The company didn’t stage an IPO, though; rather, it completed a reverse merger with the blank check company SCG Financial Acquisition Corp. in a maneuver that landed it on the Nasdaq, with a market value of $26. 8 million.

The company’s CEO, Garry McGuire, says that figure will shoot to $100 million in one week’s time, too.

I talked with McGuire a little earlier today about why RMG’s market cap is about to soar, as well as to find why the company chose a reverse merger over other funding options, whether its venture backers are sticking around for the ride, and what RMG — which currently employs 75 people — plans to do now.

You’re a longtime advertising executive who joined RMG in 2009, three years after it was founded. Who brought you in?

Kleiner. I’d worked with them on some other companies, and they’d brought me in, in conjunction with Aileen Lee, who was acting CEO at the time and who recruited me and placed me in the company; at that point in time, Kleiner made another investment.

You were tasked with refocusing the company. Why?

Prior to 2009, the company [previously named Danoo] had entered into the digital [display] business by building a network of TV screens in coffee shops in California and New York. When I joined, we refocused on airline media, building what’s now the largest airport and airline digital media network in the country. In any airport business lounge, and in any aircraft in the U.S. with seatback TVs or the Internet, [that’s RMG’s network powering the digital video advertising].

Now that you’re publicly traded, how does your trajectory change?

For us, the ability to go public [should enable us to] consolidate or roll up other companies in complementary segments. We consolidated the airline media space; now there are several other spaces like taxis, shopping malls, and other retail locations that we intend to go after and consolidate in a similar way.

What’s one of the first segments you’ll be zeroing in on?

One is the mall media segment. If you think of your journey through shopping malls, a lot of media that you see isn’t yet digital. We’ve just deployed a large [digital video network] in 70 malls in the country – malls anchored by tenants like Neiman Marcus and Macy’s —  that are reaching 62 million people a month. That’s even larger than our airline network, which reaches 42 million people a month. So we think that’s one big growth opportunity.

And you’re making your first big acquisition next week. Tell us about your plans to acquire Symon Communications for $45 million. Why is it worth it?

Symon is a very large provider of the software, hardware, and applications that power the digital signs that you see. We have our own proprietary technology, but we’ll be migrating a lot of our technology over and we’ll introduce them to our customers and vice versa. We’re buying the firm from the private equity firm Golden Gate Capital. We’ve been trying to put the business together [as two private companies] but it’ll be easier for us to structure the transaction now, and after the acquisition, our market value, which is $26.8 million today, will be closer to $100 million.

And for readers who may understand little about reverse mergers, can you explain where the money is coming from to finance the deal?

[As for the money], we opted for a reverse merger with SCG Financial Acquisition Corp., which was a blank check company with $80 million in cash. Blank check companies raise investments from hedge funds primarily, and their stated intent is to find a business to merge with within two years. Once the company decides on a target, investors can decide if they want to stay or leave. So SCG Financial raised the money two years ago, and when we did a road show, we were pitching SCG’s investors. A number of them decided they didn’t want to invest, so they tendered their shares and got their money back. But we also sold shares to a couple of large investors who came in because they like digital media companies.

What about your previous investors? Can they finally liquidate their shares if they want or is there a lock-up?

Our previous investors are rolling their equity into the new structure, and they have a one-year lock-up, as does the management team. And they’re excited about the business. [Kleiner partner] John Doerr is a big believer in the digital out-of-home media sector and [all the] firms recognize that because there’s been so much fragmentation in the market, it’s just begging for consolidation.

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