Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Say a company -- audience tracker ComScore Inc. -- makes an acquisition using its own stock. Soon after, an accounting calamity results in said stock being delisted from the exchange, and its price collapses in the process. Talk about cringeworthy.

Wouldn't you know it, that's the grade Gadfly assigns last year's merger of ComScore and Rentrak Corp.

At about $800 million, it was ComScore's largest deal and was meant to create a stronger rival to take on Nielsen Holdings Plc, whose ratings are the basis for TV-advertising rates. Before joining forces, ComScore's bread and butter was tracking consumers' online behavior, such as Twitter's and GrubHub's mobile users, while Rentrak measured TV viewing and movie box-office results. The stock-swap deal gave Rentrak investors one-third ownership of the combined entity, unfortunately for them.

Last March, just five weeks after completing the transaction, ComScore said it wouldn't finish reviewing its 2015 financial results on time. It still hasn't, and so this week its shares were delisted from Nasdaq and moved to over-the-counter trading. 

Takeover Then Tailspin
ComScore tracks numbers for a living but can't get its own financial figures right
Source: Bloomberg

When the merger was announced, Rentrak shareholders were receiving close to a 20 percent premium. That's obviously been wiped out. 

ComScore, now valued at $1.3 billion, initially discovered faulty accounting for non-monetary transactions, which overstated 2015 revenue by $29 million and understated its operating loss that year by about $8 million. In September, the company said three years' worth of filings -- which were originally blessed by auditor Ernst & Young -- would be restated. But then in November, ComScore said adjustments would need to be made to some monetary transactions as well. While it's working to regain compliance with U.S. Securities and Exchange Commission requirements by summer, it couldn't guarantee that. 

ComScore-Rentrak Scorecard
Source: Bloomberg, ComScore, Susquehanna Financial Group
Cash balance in "Before" column comes from management commentary last August. Revenue growth in "Now" column is an estimate from analysts at Susquehanna, based on management commentary and the cash balance change. "Before" market cap refers to Feb. 1, 2016, when the deal closed.

What's troubling is that the more they dug, the more they seemed to find. It was during a conference call with analysts just five months ago that Chief Financial Officer David Chemerow said he and CEO Gian Fulgoni didn't expect ComScore's stock would be delisted. It will take a long time to rebuild trust with investors. 

As Fulgoni and Chemerow have said themselves, these accounting issues are a big distraction for the business -- and from the strategic merits of the Rentrak merger. It could have been a good deal and timely, as more viewers watch TV on new platforms. But their goal to take share from Nielsen probably has given Nielsen a good chuckle.

Losing Confidence
Analysts, awaiting clarity from ComScore management, have continued to reduce their revenue and profit estimates for this year
Source: Bloomberg

That's not to say that eventually ComScore won't become a bigger threat, but for now, ComScore is its own growth obstacle and needs to get its books in order. As for Rentrak, lesson learned: This is about as bad as a stock deal can go -- next time, demand some cash! 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. For 20/20 Hindsight, Gadfly assesses past mergers and acquisitions, grading them slam dunk, polite clap, meh, troubled or cringeworthy. In this case, we took into account ComScore's plunging stock price, delisting from Nasdaq, lack of reliable financial data and the impact of the accounting issues on its ability to grow.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net