Bloomberg News

RMG Meeting Banks to Mull IPO Seeking More Than $250 Million

June 21, 2011

(Updates with Ford promotion in 11th paragraph.)

June 21 (Bloomberg) -- RMG Networks Inc. is in talks with banks about an initial public offering that would help it capitalize on surging demand for video advertisements aimed at consumers on the go, Chief Executive Officer Garry McGuire said.

The San Francisco-based ad service may try to raise more than $250 million and is meeting potential financial advisers this week to consider an IPO filing this year, McGuire said in an interview. Proceeds may fund acquisitions, he said.

RMG’s network of 200,000 televisions target air travelers, shoppers on check-out lines and runners in gyms. As some ad buyers eschew traditional broadcasts with avoidable commercials, sales in this niche market aimed at captive audiences are expected to surge 17 percent to $6.47 billion this year, according to PQ Media.

“It’s one of the fastest-growing media in the world,” said Patrick Quinn, CEO of PQ Media, an advertising research firm based Stamford, Connecticut.

McGuire is also talking to banks and private equity firms about a financing round that may eliminate the immediate need for an IPO. He has rebuffed several unsolicited buyout offers.

“We are definitely getting broadcast TV budgets and we’re seeing a lot of migration from newspapers,” McGuire said. “Our business is growing astronomically.”

TV Alternatives

Shares of National CineMedia Inc., a movie theater advertising service, declined 23 percent since its Feb. 7, 2007 IPO through the close of trading yesterday. Like RMG, the company offers an alternative to video ads on broadcast TV.

RMG is profitable and will double revenue this year, McGuire said, while declining to disclose sales figures. He’s watching professional-networking site LinkedIn Corp. and radio- service Pandora Media Inc., two recent technology IPOs, to help gauge whether it’s the right time to take his company public.

National CineMedia runs promotions on more than 17,000 movie screens nationwide. Premier Retail Networks Inc. shows ads on monitors near cash registers in more than 8,500 U.S. stores and restaurants. Gannett Co.’s Captivate Network offers air-time in more than 10,000 elevators worldwide.

RMG’s ads stick with consumers because they can’t change channels or easily walk away to avoid commercials, said McGuire. His airport network, for example, captures passengers during flights.

Ford’s Lincoln Ads

In January, Ford Motor Co. began promoting its Lincoln vehicles to travelers on airlines including Delta Air Lines Inc. and Virgin Atlantic Airways Ltd. through RMG, a move that the carmaker said boosted awareness of the brand.

“We’re extremely happy with the results so far,” said Susan Venen-Bock, the U.S. media manager for Ford. “Going forward, we are looking for higher-engagement ideas.”

Besides being hard to tune out, RMG promises advertisers more screen-time than a typical 30-second TV commercial. Shoppers, for example, typically spend eight minutes in grocery checkout lines, McGuire said.

“We are all seeing traditional video advertising dollars coming our way,” said Scott Lyon, vice president of marketing at Captivate Network.

To expand its national advertising network, RMG spent $75 million on three acquisitions since 2009, McGuire said. In April, he bought airport and train display operator Executive Media Network. He also bought IdeaCast to grow in the airline industry and PharmacyTV to augment the company’s retail business.

Planned Acquisitions

McGuire wants to do two more deals this year to boost his coverage across the U.S. and abroad, including emerging markets in China and India. He has more than 200 smaller rivals to review as he considers potential takeover targets.

New smartphone technology also helps RMG lure customers, McGuire said. Among other services, RMG enables consumers to text numbers advertised on its displays to receive offers from daily-deal website Groupon Inc. It shares revenues merchants collect on related sales, McGuire said.

At an RJ’s Market in San Francisco, shoppers can watch an ad for The New York Times’ mobile application while on the checkout line, then tap their phones to a tag on the display to download the app. Businesses pay RMG $1 every time an app is downloaded from one of its displays, using what is known as near field communication technology, McGuire said.

Double Revenue

“Most of our advertising campaigns in the next three years will be NFC enabled,” McGuire said. He plans to expand this feature to offer tags near 75,000 monitors by the end of the year, from about 1,200 now. “It makes every ad campaign twice the size. It could double our revenues three years out.”

The tags are powered by technology from Blue Bite LLC, a mobile-marketing company based in New York.

RMG investors include Kleiner Perkins Caufield & Byers, DAG Ventures LLC, Tennenbaum Capital Partners LLC, AOL Inc.’s Chairman and CEO Tim Armstrong, and former San Francisco Examiner publisher William R. Hearst. National CineMedia is also an investor.

“It’s a huge growth area,” said Elisa Steele, a board member at RMG and Chief Marketing Officer at Yahoo! Inc. “We’ve only begun to see the innovation here.”

--Editors: Lisa Rapaport, Jillian Ward

To contact the reporter on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles@bloomberg.net.


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