In some of the least surprising news in recent memory, word came out Wednesday that RMG Networks is mulling an IPO in which it would raise $250 million in equity financing. The timing is not shocking considering the overheated reaction to the LinkedIn IPO, the warm reception for Pandora and the astronomical valuations contemplated for the arguably fatally flawed Groupon. RMG, which is funded primarily by Silicon Valley VC stalwarts Kleiner Perkins and DAG Ventures, was clearly headed toward a new round of financing to drive growth and take advantage of RMG’s momentum. The last several months have basically been a public speaking road show for CEO Garry McGuire, with the goal of positioning him as the leader of the free world of DOOH, and the company as an unstoppable force. With that PR job nearly complete, why not extract the next round from the public at market bubble valuations? As much as the investors would undoubtedly love to prove The Greater Fool Theory and sell you shares at inflated prices, RMG might not really be ready for that level of scrutiny. McGuire implied as much in an interview yesterday with DailyDOOH’s Gail Chiasson, saying he was “not convinced that (an IPO) is the way to go right now”.

In related news, McGuire confirmed the departure of Suzanne LaForgia, EVP of Advertising Sales and Luke Zalentz, EVP of Business Development. LaForgia was a ballyhooed hire just a year ago, after her stint as the figurehead atop the Bilderberg Group of DOOH, a/k/a the DPAA. Zalentz was a long-timer at RMG. Of note is that neither position was replaced. These departures come on the heels of the April departure of Bob Martin, then RMG’s CMO, to work for SeeSaw Networks. Martin had been at RMG for 18 months. There is no Marketing executive currently listed on the RMG management team web page. Are all these moves just turnover, or a thinning of the top heavy herd in preparation for discussions with potential new investors, either private or public?

McGuire also unveiled a reorganization of the RMG networks into three groups, as reported in the DailyDOOH article:

  1. Executive Traveler – which includes all the airplane, airports and lounges;
  2. Fitness and wellness – which includes gyms, health centres and pharmacies;
  3. RMG Local – which includes taxis, hotels, casinos, and N.Y. Times (coffee bars and casual dining.

This bears an uncanny resemblance to the way RMG described itself two years ago in a Digital SIgnage Today article: “RMG’s three initial audience networks – the Business Traveler network, the Health & Fitness network and the Urban Mobile network.” While this sure sounds a lot more like a renaming than a reorganization, it does seem to confirm the rumored end of RMG’s representation of mtvU, which is a college campus network that still exists in RMG’s online Media Kit (link here), which provides some other clues to the nature of RMG’s business model and potential changes in store.

Let’s look at the pieces of the puzzle. RMG was formed and launched after the Danoo acquisition of IdeaCast in 2009. The legacy Danoo network is now known as the Today network, and is focused on urban cafes and eateries, with 650 locations according to the RMG Media Kit . Interestingly, press releases at the time of the IdeaCast acquisition claimed 850 locations for the Danoo eatery network, although that may have included some airport shops. In any case, it does not appear to be a growth vehicle based on number of locations. Most people who have observed that network would agree that the screens are generally placed in non-optimal locations within the cafes, that the screens themselves are too busy to be engaging, and that there do not appear to be many advertisers. It is hardly a case study for a world class digital signage network from any perspective. To my limited knowledge, the technology that powers Today is not leveraged in the RMG portfolio beyond that network. More on that later. IdeaCast brought the In-Flight Entertainment business to the party, which is appears to be the crown jewel of the business. IdeaCast also brought along the Fitness Network, which by some reports is hardly a world beater. The network apparently has lesser ability to target content at the site level due to the nature of its infrastructure, as compared with its key competitors, Zoom Media and Health Club Media Network. A brutally candid view of the Fitness Network appeared here. A 2011 acquisition, Executive Media Networks (since renamed the Executive Travel Network) is deployed in many top airline clubs and lounges, and is reportedly a very good property, and obviously a good fit with the In-Flight business.

RMG’s entry in the Point-of-Care business (now lumped in under Fitness and Wellness) is an acquired company, Pharmacy TV, which went belly-up several years ago after deploying in over 400 Long’s Drug Store locations, later re-emerging with fewer than 100 locations, all far less attractive than Long’s. The media kit also lists two non-owned health-related networks which they claim to represent, although only one of those is also listed on the web site itself. Draw your own conclusions. One might ask where the sales leverage is between the primary businesses of cafes, fitness clubs, in-flight entertainment and VIP lounges and the tightly focused world of pharmacies and doctor offices. Adding to the mix of sales rep agreements are the now-departed mtvU and a casino network based in Caesars, Harrah’s and Horseshoe properties. Finally, there is a Taxi Network in conjunction with Taxi Magic, which appears to be early stage from what I can glean.

All together, there are owned networks that are split between very good and marginal, and a series of ad sales rep agreements that in a perfect world would deliver hefty commissions without the need to make a capex investment. Actual results of the sales rep activity may have varied from the ideal however, especially in light of the executive departures confirmed yesterday. Those executive departures may signal a decisive move away from the third party ad sales rep business, and a reinvestment in owned networks. I believe that the rollup model for networks has some validity, but acquisition diligence will trump opportunism in the end. Kleiner, which backed Danoo/NYTimes from the start, picked up the In-Flight gem with IdeaCast, but also the less attractive Fitness network. The Executive Media Network win was offset by the questionable-at-any-price Pharmacy TV move. The group of networks with which RMG has ad sales rep agreements (or had, based on the conflicts between the media kit and the web site) is a mish-mash of verticals, demographics, technologies and special situations. It does not leverage the strength of the core properties or the time of the sales team. Hence the logic of refocusing on owned properties.

RMG has a defensible top position in an attractive niche in the Business Travel vertical. They are not even close in any other vertical with an owned network. Is this the stuff of an executive summary for a pre-IPO S-1 filing? Decide for yourself.

Yesterday’s news article refers to the desire to raise $250 million for new acquisitions. Potential investors need to ask two questions. First, what percentage of the RMG juggernaut does one get for $250 million? You can bet that private investors, which is probably the path of least resistance, would get a much lower pre-money valuation than public investors. Life is a series of tradeoffs. Second, will the acquisitions leverage strengths or simply be whatever they can find at bargain basement prices? They have not made a game changing acquisition since the relaunch of Danoo-IdeaCast as RMG. The EMN deal was a good niche deal for sure, but they have not been successful in pulling off something bigger, and that is not for lack of trying. It seems clear at this point that RMG has little taste for funding the capex for new networks, having experienced that at Danoo, whose growth stalled, perhaps in an effort to conserve capital. Since McGuire said that he now has three deals in line that would eat the full $250 million, he must not be bottom feeding for the next Pharmacy TV deal. So what could it be? Given the relabeling of the network groups and the size of the potential deals, the candidates for acquisition are relatively small in number. We may never know who the companies are that McGuire is referring to, but I will bet the traditional box of donuts that he knows the executives of at least two of them from DPAA meetings. I have sealed the names of my short list in an empty mayonnaise jar buried in the backyard.

RMG has also struggled to create a consistent technology infrastructure that would deliver operational efficiencies. If they proceed with multiple network acquisitions, that situation is likely to be exacerbated. In fact, one savvy observer told me a year ago that RMG could not successfully go public without making a technology acquisition. The reasoning was twofold. First, running multiple networks on multiple platforms is very costly and inefficient. Rollups need to exploit efficiencies of scale, and infrastructure is a big piece of that. Second, a consolidator like RMG would need to have a captive technology advantage to build and maintain barriers, a story that plays well on IPO road shows. The Danoo legacy platform has not been asked to scale into thousands of sites to date. It is probably not viewed as the answer. If RMG chose to acquire technology, the list of potential candidates for a scalable platform deal is actually fairly short, but it is not clear that it is a current priority. In any case, a harmonization of technology infrastructure will be a costly effort, but will have to make its way on to the pre-IPO to-do list at some point, whether they choose to make or buy.

The tea leaves seem to indicate that RMG is focused on filling its three network buckets with more owned networks, and rationalizing its efforts to sell ads for non-owned networks, which is a very competitive business. A second box of donuts says that they will raise more private money before they consider an IPO, betting that investing in and fixing the model and then hitting some proof points will render a higher valuation down the road. To their credit, RMG was bold and early in the consolidation game. They have learned some tough lessons, and are now at a crossroad where they must choose a path toward the next stage. That path must leverage what has worked and address areas that have not performed as well. As you can see, it is a toll road.