Creative Realities Fending Off Takeover Bids From Key Private Equity Investor

May 23, 2023 by Dave Haynes

The digital signage solutions provider Creative Realities is in the midst of a takeover bid from a main investor, with a board committee rejecting at least a couple of share buyout proposals – the most recent of those coming late last week.

The company’s suitor is Pegasus Capital Advisors, which owns the entity – Slipstream Communications – that is described as the largest sources of funding for CRI over the last decade or so. Pegasus, based on news from earlier this year, has just shy of 40% of the company.

From investor PR:

As previously reported, on May 1, 2023, Creative Realities, Inc. (“Creative Realities,” “CRI,” or the “Company”) (NASDAQ: CREX, CREXW) received a revised proposal (the “Revised Proposal”) from Pegasus Capital Advisors, L.P., on behalf of itself and certain of its affiliates (collectively, “Pegasus”), to acquire all of the outstanding shares of common stock of the Company that are not owned by Pegasus for a purchase price of $2.85 per share in cash. The Revised Proposal followed an earlier proposal (the “Original Proposal”) from Pegasus to acquire all of the outstanding shares of common stock of the Company that are not owned by Pegasus for a purchase price of $2.49 per share in cash (adjusted for the Company’s 1-for-3 reverse stock split) effected March 27, 2023. The Original Proposal was rejected by a special committee (the “Special Committee”) of the Company’s non-executive, independent directors.

The Special Committee, in consultation with its advisors, carefully reviewed and considered the Revised Proposal to determine what course of action it believed to be in the best interests of the Company’s shareholders. The Special Committee has concluded that the Revised Proposal undervalues the Company based on the Company’s existing business and current and future prospects, and is not in the best interests of the Company’s existing shareholders.

The Special Committee advised Pegasus that it has rejected the Revised Proposal. The Special Committee remains available to evaluate and respond to any revised proposal. There can be no assurance that any revised proposal or definitive offer will be made or accepted, that any agreement will be executed, or that any transaction will be consummated.

The $2.85 number was rejected as too low, but represents a big jump from an earlier offer, back in February. That offer was 83 cents a share.

CRI’s CEO Rick Mills told investors on a recent call that the company is forecasting $60 million in revenue for 2023, and described a business on the rise:

“I am pleased to report that the Company generated first quarter 2023 revenue of $9.9 million with first quarter records of $5.1 million and approximately $960 thousand in gross profit and Adjusted EBITDA, respectively. This translates to first quarter gross profit and Adjusted EBITDA margins of 51.2% and 9.6%, respectively. The former is a record gross profit margin percentage for a quarter and the first time this number has exceeded 50%. While not a quarterly record, the first quarter Adjusted EBITDA margin percentage is a 370 basis-point improvement over the same period in 2022 and 120 basis-points above the full year results for fiscal year 2022. The Company’s run-rate on annual recurring revenue (ARR) is also at a record level of $14.8 million. These results highlight two critical factors for investors –we believe the Company’s baseline revenue levels have grown to equal $10 million in periods without material active hardware deployments, and we continued to enhance profitability in such periods driven by continued growth in our SaaS subscription revenue contracts, or ARR.

“Our first quarter typically reflects a number of seasonal influences,” stated Mr. Mills. Mr. Mills continued “Our top-line revenue for the first quarter is in line with expectations we previously articulated on our year-end 2022 results earnings call and the results required for us to drive towards the $60 million in guidance for 2023.” Mr. Mills further stated, “As we have previously communicated, we have secured material new client deployments which will ramp up significantly throughout 2023, particularly as we enter the second half of the year and throughout 2024.”

Mr. Mills added, “Importantly, we are continually driving improvements in our profitability associated with both scale and new deployments, which drive our SaaS and other downstream recurring and services revenue at significantly more favorable margins. Increases in high-margin ARR increase the Company’s gross profit margin, which exceeded 50% in the period, with further improvements projected for our Adjusted EBITDA flow-through as we seek an Adjusted EBITDA run-rate of 15% exiting 2023.”