Taptica International Ltd – Recommended offer for RhythmOne plc by Taptica

Taptica International Ltd – Recommended offer for RhythmOne plc by Taptica

Taptica International Ltd (AIM: TAP), a global leader in advertising technologies for performance-based mobile marketing and brand advertising, is pleased to announce a proposed merger with RhythmOne Plc (AIM: RTHM) by way of a recommended offer by Taptica to acquire the entire issued and to be issued ordinary share capital of RhythmOne under the UK Takeover Code.

 The combination of the two businesses is expected to create one of the leading video advertising companies in the US, delivering significant economies of scale, customer base and supply chains to compete with the industry leaders.


  • Under the terms of the Offer, each RhythmOne Shareholder will be entitled to receive 28 New Taptica Shares for every 33 RhythmOne Shares held.
  • The Offer is proposed to be effected by means of a Scheme of Arrangement under Part 26 of the Companies Act.
  • Taptica Shareholders and fully diluted RhythmOne Shareholders will hold 50.1% and 49.9% of the Enlarged Group respectively following the completion of the Offer.
  • The Enlarged Group intends to launch a $15 million discretionary share buy back programme immediately following completion of the Offer.
  • Proposed appointment of Ofer Druker as CEO of Taptica, subject to standard regulatory approvals. Ofer Druker will also become the CEO of the Enlarged Group.
  • The Boards of Taptica and RhythmOne will be publishing an investor webcast and presentation today on both the Taptica and RhythmOne websites, at www.tapticainternational.com and www.rhythmone.com.
  • Irrevocable commitments and letters of intent to vote in favour of the proposed merger from shareholders holding 46.6 per cent. of the issued Taptica Shares and 50.95 per cent. of the issued RhythmOne Shares.
  • This announcement should be read in its entirety.

Background to and reasons for the proposed merger

The advertising technology space has seen a significant transition in the way individuals consume media over the last decade. Audiences who previously viewed content on desktop screens have shifted to viewing via mobile devices with rapid growth of consumption for connected TV (“CTV”) platforms and over-the-top media (“OTT”). These alternative platforms promise to be the future of video and offer a compelling proposition for advertisers.

The Enlarged Group is expected to benefit from the following:

  • A significant increase in the scale and profile of its video advertising business, in particular within the United States, which could also create interesting global opportunities.
  • The ability for YuMe (acquired by RhythmOne in February 2018) and Tremor Video (acquired by Taptica in August 2017) to work alongside one another, giving sales teams strong cross-selling opportunities and the potential to further diversify existing revenue streams. Specifically, YuMe has attractive relationships with large-scale premium advertisers and access to premium inventory which could provide the Enlarged Group with valuable reach into CTV media, where RhythmOne has gained important experience over the last few years. Similarly, Taptica believe Tremor Video’s knowledge and existing relationships with premium advertisers and TV data companies would be of commercial benefit to the YuMe sales team.
  • Pushing Tremor Video’s demand-side platform through RhythmMax is expected to generate significant revenue opportunities. 
  • The combination of the supply side of RhythmOne and the demand side of Taptica will allow the Enlarged Group to offer a comprehensive, end-to-end technology platform to its customers.
  • Certain of RhythmOne’s assets could be highly complementary to Taptica’s performance business. Performance-based advertising has become increasingly focused on brand protection, deliverability and measurement of KPIs. RhythmOne has strong relationships and agreements in place to access a large supply of media. The Enlarged Group will be able to offer a media platform with the ability to reach a large volume of users and optimise performance based on a technological advantage.
  • Significant infrastructure cost synergies, primarily surrounding the consolidation of service providers, the rationalisation of bandwidth and technology infrastructure and saving the costs currently incurred through RhythmOne’s listing on AIM and from being registered as a foreign private issuer with the U.S. Securities and Exchange Commission.
  • Taptica’s management team’s proven track record in successfully integrating businesses and leveraging established brands within the ad-tech ecosystem, as proven by its successful integration of Tremor Video DSP (demand side platform) acquired in August 2017.
  • The skills and expertise of the combination of both Taptica’s and RhythmOne’s employees will enable the Enlarged Group to grow its overall business.
  • The creation of a cash generative business supported by Taptica’s net cash position as at 31 December 2018 of $54.4 millioni. As at 30 November 2018, RhythmOne had a net cash position of $18.22 millionii.

Taptica positioned itself via the acquisition of Tremor Video DSP in August 2017 to exploit the changing industry landscape towards video OTT and CTV. CTV is becoming one of the main delivery points for OTT content and is expected to grow as audiences continue to embrace digital streaming over multiple devices. In 2018, it was estimated that the number of CTV users was 182.6 million in the US alone, and this is expected to rise to 204.1 million by 2022, which represents 60.1% of the projected US populationiii. This expected growth in audience size has given rise to an expected increase in video advertising budgets. It is expected that digital video ad spend will grow in the United States from $17.9 billion in 2018 to $26.93 billion by 2021iv, and across the same period it is expected that digital ad spend will grow from $37.45 billion to $70.66 billion globallyv. The Boards of both Taptica and RhythmOne believe that the Enlarged Group will be in a better position as one of the leading video advertising companies in the US to exploit this fast-growing global video advertising space.

 Further details regarding the background of the Offer, the recommendation from RhythmOne to its shareholders and intentions for the Enlarged Group can be found in Section 2, parts 3,5 and 10 of this document.

Proposed merger terms

  • Under the terms of the Offer, each RhythmOne Shareholder will be entitled to receive 28 Taptica Shares for every 33 RhythmOne Shares held.
  • Based on the closing mid-market price of a RhythmOne Share of 170.4 pence on the 1 February 2019, being the latest practicable date prior to the release of this Announcement (Latest Practicable Date), the Offer values the entire issued and to be issued ordinary share capital of RhythmOne on a fully diluted basis at approximately £135 million.
  • The terms of the Offer were agreed on the basis of a merger of the two businesses and their respective merits rather than on the current market share price of each respective business.
  • The Offer has been structured such that shares owned by Taptica Shareholders will represent 50.1 per cent. of the Enlarged Group, with the issued and to be issued share capital of RhythmOne representing 49.9 per cent. of the Enlarged Group.

i Net Cash is defined by Taptica as “Cash and cash equivalents less short- and long-Term interest-bearing debt including capital and finance leases.”
ii Net Cash defined by RhythmOne as: “Net cash comprises of cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value in addition to marketable securities which are investments in corporate bonds, commercial papers, government bonds, collateralized securities and certificates of deposit net of borrowings under the Company’s revolving credit facility.”
iii ‘Connected TV Advertising’ report published by eMarketer August 2018
iv ‘Q2 2018 Digital Video Trends – Monetization, Audience, Platforms and Content’ report published by eMarketer April 2018
v July 2018 Cowen and Company report “Cowen’s Inaugural Midyear Ad Buyer Survey – Ahead Of The Curve Follow Up Series”

Appointment of a new Chief Executive Officer

The Board of Taptica is pleased to announce that Ofer Druker is expected to become the Chief Executive Officer of Taptica and the Enlarged Group, subject to standard regulatory approvals being received. Mr. Druker is currently the Executive Chairman of the Tremor Video division of Taptica and has been instrumental in the successful integration between Tremor Video and Taptica since it was acquired by Taptica in August 2017.

Mr Druker was the founder and CEO of Matomy Media Group Ltd until April 2017, having built Matomy from its inception in 2007 into a digital media company with revenues of $276.6 million for the full year ended December 2016. Mr Druker was responsible for leading Matomy’s most important strategic transactions, including the acquisitions of Team Internet, Media Whiz, Mobfox and Optimatic. Mr Druker is expected to take over from the Company’s Interim CEO, Rivi Bloch, who was appointed shortly after Mr Hagai Tal stepped down from the Board on 5 December 2018. Ms Bloch will continue as CEO of Taptica’s Performance Division.

Taptica would like to reconfirm that the result of the civil court case announced on 3 December 2018 against Hagai Tal, the previous CEO and Executive Director of Taptica, has no impact on Taptica and the Board has no reason to believe there have been any criminal offences conducted by Mr Hagai Tal. Mr Tal is supportive of the proposed merger and has irrevocably undertaken to vote in favour of the resolutions to be proposed at the Taptica General Meeting with regard to his 13.85 per cent. shareholding of Taptica.

The Board of the Enlarged Group (the “Enlarged Group Board”) will be made up of Taptica’s existing board members, with the addition of Ofer Druker as Chief Executive Officer.

Share buy back programme

Taptica announces that it is the intention of the Enlarged Group to launch a $15 million discretionary share buy back programme to purchase shares in the market, commencing immediately following the completion of the proposed merger. The Enlarged Group will instruct finnCap Limited (“finnCap”) to manage the buy back on its behalf during the period.

A further announcement will be made shortly following the completion of the proposed merger to detail the launch of the share buy back programme.

Tim Weller, Non-Executive Chairman of Taptica commented:

“Taptica is pleased to announce the proposed merger with RhythmOne in a transaction we believe to be in the best long-term interest of Taptica shareholders. The Enlarged Group is expected to create one of the leading video advertising platforms in the United States and will therefore be well-positioned to exploit the growing demand for OTT and CTV. The Enlarged Group will be able to offer a comprehensive technology platform to its customers with a full demand side and supply side offering to create interesting global opportunities. This, coupled with the Enlarged Group’s global scale of operation, is important to retaining and gaining customers and will enable it to compete with other market leaders in the video advertising space.       

“The board of Taptica acknowledges the limited communication with its shareholders whilst Taptica has been in negotiations regarding the proposed merger, which forced Taptica into a closed period and paused the share buy back programme announced on 12 December 2018. Taptica’s management has been working hard on the proposed transaction in order to announce it as soon as possible and ending the period of limited publicly available information.

“Taptica proposes to release its full year figures to 31 December 2018 on 26 March 2019, when it will provide a comprehensive overview of Taptica’s performance in 2018. RhythmOne, as an English public company, is subject to the UK Takeover Code and therefore certain rules are in place that restrict unaudited financial information being made publicly available on the Offeror and Offeree whilst negotiations are in process. Taptica released a brief trading update on 17 January 2019, confirming that it finished the year to 31 December 2018 in line with management expectations; the limited information contained in this statement in comparison to trading updates made in previous years was as a result of these restrictions.

“The Board of the Enlarged Group will update the market regarding the potential synergies and opportunities available to the Enlarged Group shortly after the completion of the merger.”

Commenting on the Offer, Eric Singer, Non-Executive Chairman of RhythmOne, said:

“I believe this transaction best positions RhythmOne for the future.  As we look into and plan for our next fiscal year, combining RhythmOne and Taptica addresses the importance of scale in our industry.  The transaction also leverages each company’s respective capabilities to provide a more comprehensive product offering, which will, we believe, offer significant revenue synergies, to the benefit of our shareholders and employees.”

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