RMG Networks has done a definitive merger agreement with its board chairman to take the company private, after several years operating as a public company. The deal opens a time window for a third-party suitor to, in effect, make a “superior” offer before this deal closes.
The merger deal is with Greg Sachs, RMG’s Executive Chairman, under the company name SCG Digital, LLC. The deal is valued at roughly $16.8 million, including the assumption of approximately $2.65 million of debt.
Under the terms of the merger agreement, says a press release, RMG stockholders get $1.27 in cash for each share of RMG’s common Nasdaq stock they hold.
The board of directors of RMG, on the recommendation of a special committee of the board comprised entirely of independent directors, has approved the merger agreement and has resolved to recommend that RMG’s shareholders adopt the agreement.
Mr. Gregory H. Sachs and certain entities related to Mr. Sachs have reached agreements to vote their shares in favor of the transaction.
Upon receipt of stockholder approval, as well as satisfaction of other closing conditions, the transaction is expected to be completed in the second quarter of 2018.
An intriguing aspect of this is how the terms of the merger agreement allow for receiving “superior proposals for the acquisition of RMG during the next 45 days.”
RMG advises that there can be no assurance that the solicitation of superior proposals will result in an alternative transaction, the release says. RMG does not intend to disclose developments with respect to the solicitation process unless and until the special committee of the board has made a recommendation and the board of directors has made a decision.
So another company with deep pockets and ambitions could, in theory, come in and buy Sachs out, once it is again a private company.
I have heard rumors of RMG being shopped and a particular company mentioned as a suitor, but RMG CEO Bob Michelson told me in a call Tuesday evening he is not aware of that. I don’t write up rumors, if you are wondering.
From Michelson’s perspective the deal, on closing, infuses the company with $2 million in working capital and allows him “to keep our strategy and our people together.”
It also, he says, allows the company to get away from the endless reporting requirements and resulting distractions associated with running a stock market-listed company. Michelson said the current headcount globally is about 160 people – which in terms of software companies focused on the signage sector is likely a top 5 headcount. The various Stratacache companies roll up to about 700 people and Four Winds is just shy of 400. Just about everyone else is 50 or less.
Michelson joined the company well after the company went public via former CEO Garry McGuire, and has moved the company out of the digital out of home media business and back into the core of the old Symon Communications – workplace communications. RMG has more recently started going heavily after retail, and debuted a new platform called Korbyt.
In an ironic twist, the guy who led the reverse merger that resulted in RMG and its public listing is the guy doing a “never mind” and taking it back to private. Back in 2013, Sachs led the effort to combine Reach Media Group Holdings, Inc. and SCG Financial Acquisition Corp.
The press release goes on to provide details on the transaction (and sorry, I am MBA-impaired and can’t really decode all this):
In connection with the definitive merger agreement, RMG and certain of its subsidiaries, as borrowers, have entered into a subordinated loan and security agreement on April 2, 2018, with SCG Digital Financing, LLC as the lender, providing RMG with a $2 million bridge loan within one business day of the execution of such loan agreement.
In the event that the merger agreement is terminated by RMG because SCG Digital, LLC fails to consummate the merger when otherwise obligated to do so, SCG Digital Financing, LLC will make an additional loan to RMG of $1 million, on terms governed by the subordinated loan agreement. SCG Digital Financing, LLC is an affiliate of Mr. Sachs and SCG Digital, LLC.