Mark Cuban-Backed Rentrak Seen Luring Bids: Real M&A
Stock Chart for Rentrak Corp (RENT)
Rentrak Corp. (RENT), whose technology tracks how consumers watch movies and TV shows, is shaping up as a takeover target for companies including Google Inc. seeking more data as viewers shift to smartphones and the Internet.
Rentrak, which counts billionaire investor Mark Cuban as its second-largest shareholder, is poised to double sales over the next three years, according to data compiled by Bloomberg, as companies demand more precise ratings analysis of mobile and digital content. Rentrak’s technology and growth prospects could appeal to Google, offering the Internet search giant a means to bolster its share of the online and mobile-ad market, BWS Financial Inc. said.
The company also could attract advertising firms seeking to hone marketing efforts, or even larger rival Nielsen (NLSN) Holdings NV, according to Perritt Capital Management Inc. Suitors could pay three times the Portland, Oregon-based company’s market value, or as much as $1 billion, said Brean Capital LLC, which also sees TiVo Inc. (TIVO) as a potential bidder.
“For what they do and the technologies they develop for tracking data, it makes a lot of sense for someone bigger to seriously look at them and buy them,” Hamed Khorsand, a Woodland Hills, California-based analyst at BWS Financial, said in a phone interview. “If you’re in any kind of media or advertising, it gives you full control over it.”
Antoine Ibrahim, a spokesman for Rentrak, declined to comment on whether the company has been approached or would be open to a sale.
Rentrak attracted interest from Cuban in 2004 when its primary business was distributing videocassettes. Rentrak shares have since more than doubled to $28.54 yesterday as the company established a foothold in media measurement. Cuban, the founder of Broadcast.com, sold the multimedia company to Yahoo! Inc. in 1999.
Cuban, also the owner of the Dallas Mavericks National Basketball Association team, didn’t respond to e-mailed requests for comment on whether he would support a sale of Rentrak. He holds an 8.2 percent stake in the company, according to the most recent data compiled by Bloomberg.
Rentrak uses big-data technology that sifts through large sets of digital information to track media consumption on a variety of platforms. Services include monitoring social-media sites to gauge whether marketing dollars spent on movies that haven’t yet been released are sparking audience interest, and analyzing viewership of downloaded and streaming content.
The company’s digital and mobile tracking capabilities are becoming more valuable to advertisers, with U.S. adults estimated for the first time this year to spend more hours with digital media per day than watching TV, according to research from EMarketer Inc. U.S. mobile ad spending will grow to $13.1 billion in 2014 from an estimated $8.5 billion this year, EMarketer said in an August report.
The company’s database approach provides more precise audience information than the sampling used by larger rival Nielsen, said Todd Mitchell, a New York-based analyst at Brean Capital. With Nielsen, a $13.4 billion company, poised to bulk up further through the planned acquisition of Arbitron Inc., Rentrak is likely to lure clients -- and acquirers -- seeking a nimbler and more innovative alternative, Mitchell said.
Rentrak “would be very attractive” as a takeover target, Mitchell said in a phone interview. “You can basically have a much more comprehensive solution set for your customers.”
The company’s shares gained 12 percent in two days after Mitchell published a report on Sept. 10 that said the company could be a takeover target.
Today, the shares rose 6.2 percent to $30.32, leading stocks in the Russell 2000 Consumer Discretionary Index and reaching their highest closing level since January 2011.
Advertising agencies looking to bring Rentrak’s data-tracking expertise in house are among potential suitors, with WPP Plc (WPP) and Interpublic (IPG) Group of Cos. as the most likely among the larger firms to bid, according to Mitchell. WPP could look to bolster its Kantar data-management business, while Interpublic may be lured to Rentrak to stay competitive as rivals Publicis Groupe SA and Omnicom Group Inc. merge, he said.
A representative for London-based WPP declined to comment, while New York-based Interpublic didn’t return a phone message seeking comment.
In addition to advertising firms, Rentrak’s technology could even attract Nielsen as the company seeks to maintain its position in the ratings market, said Michael Corbett, chief investment officer at Perritt Capital, which owns Rentrak shares. Nielsen’s takeover of Arbitron has faced antitrust scrutiny.
Rentrak’s “technology is impressive,” Corbett, whose Chicago-based firm oversees about $600 million, said in a phone interview. “I’ve always kind of thought that it would make sense in a bigger company’s portfolio.”
Google (GOOG) also could be interested in acquiring the company, said Khorsand of BWS Financial. The YouTube website owner is the No. 1 digital-ad publisher in the world across all devices, according to EMarketer.
“Google is the one really that would make a lot of sense just because of everything they do in advertising and what they want to achieve as far as media goes,” he said.
Another possible scenario is a combination with digital-media data tracker ComScore Inc. (SCOR), according to Mitchell of Brean.
TiVo also could be interested in combining Rentrak’s viewership analysis tools with its data on users’ clicks and preferences, although its management has signaled it would prefer to return cash to shareholders, Mitchell said.
Representatives for TiVo and Mountain View, California-based Google declined to comment on whether their companies would be interested in buying Rentrak. Representatives for Reston, Virginia-based ComScore and New York-based Nielsen didn’t return phone messages seeking comment.
Rentrak still has its video-distribution business, which comprised 45 percent of the company’s revenue in fiscal 2013, down from more than three-quarters just four years earlier. With that unit in decline, buyers may not be willing to offer a premium high enough to entice management to sell, particularly with the stock already at its highest level in more than two years, said Rich Tullo of Albert Fried & Co.
“It’s fairly valued on a sum-of-the-parts basis,” the New York-based analyst said in a phone interview. “If a company is trading at a high multiple and it’s got a business in decline, then it’s harder to create shareholder value.”
While the shrinking video-distribution unit has been a drag on results, it has helped provide Rentrak with money to build out its growing data-tracking division, said Corbett of Perritt Capital.
“This is a crossover story,” he said. “It’s going from an old, legacy, boring, declining business to a more exciting business. The new advertising tracking service is much more exciting to anybody out there.”