The Tsavo/Cyberplex/Moxy Media/Geosign deal

Better late than never to comment on this, I suppose. Let me be the first to say that I don’t have the foggiest idea what the following means:

By matching Tsavo’s media properties and search marketing capabilities with Cyberplex’s network of over 10,000 publishing partners, Cyberplex will offer an unprecedented value proposition to tier one advertising clients and an extremely targeted advertising platform. The individual capabilities of Cyberplex and Tsavo are complementary and together the combined entity will constitute one of the largest online advertising companies in Canada.”

Tsavo’s ability to drive search traffic to the hundreds of campaigns being promoted through the Cyberplex network will provide for an enhanced client experience and represents considerable growth potential for both organizations. Search marketing is and continues to be one of the most effective methods to target and understand consumer intent and is an essential part of performance marketing.

Anyone want to translate?

Geosign aka Moxy Media claims almost $200 million in annual revenues

Okay, Geo watchers, Moxy Media, the company formerly known as Geosign is back in the news. And just like you can judge a man by the company he keeps so can you judge a business by its corporate bedfellows. Geosign wants to team up with Avid Life Media Inc., the parent company of dating websites such as CougarLife.com , EstablishedMen.com and the notorious AshleyMadison.com for aspiring adulterers.

The Globe and Mail reports:

Avid Life will use part of the money it raises in a private placement to acquire privately held Moxy Media, an online advertising sales company based in Guelph, Ont., that runs more than 300 websites.

The merger would create a far larger, and more diverse, media company.

Moxy reported sales of $192-million and $27-million of EBITDA in 2009, according to documents used to market the deal. After the takeover, Avid Life will list on the TSX Venture Exchange or Toronto Stock Exchange by staging a reverse takeover of a shell company.

I must confess I’m somewhat surprised by that $192 million in ad revenues. How is Moxy still getting traffic to its websites without help from Google AdWords? Where’s it coming from? Or are these fantasy figures designed to fool suckers like American Capital Strategies.

My suggestion: DO NOT BUY STOCK!!!!

Why I’m betting Geosign suckered American Capital

The latest theory on the bizarre Geosign/American Capital deal — floated first in the comments of this blog and then in the Financial Post magazine cover story on Geosign (no longer available at the magazine’s site)  — is that American Capital knew exactly what it was doing and took a well calculated risk when it invested its $160 million last year.

The evidence, according to one or more anonymous commenters, is:

A VC with billions in assets doesn’t get suckered by a Guelph tech upstart. Just doesn’t happen — American knew, but maybe they’re not thrilled to disclose that their bet went so wrong.
———–

Do you really think that anyone invests $160,000,000 into a company that claims to be a multi-million Dollar business without checking every piece of information they can get hold of? I don’t.

Any investor looking into this would certainly ask “now, where does this money come from, exactly?” – VCs tend to grill candidates before money changes hands, even more so when a large-ish amount is involved.

Well, I agree 100% that they should know these things, but I don’t think you can take it as an article of pure faith that they do.

As Randall Howard, a general partner at the Toronto and Waterloo venture capital firm Verdexus, told me last summer: American Capital would have done “a tremendous amount of due diligence. I’d be totally shocked if they didn’t know not only where the revenues came from but where they were going to be coming from.”

Notice that second part of his quote about how they would have known where future revenues were coming from. That’s a long way from “they would have taken a high-risk $160 million bet on a revenue model that was widely known to be shakey and a large thorn in Google’s side in 2006.”

Um, isn’t the the whole point of all that due diligence is to allow the VCs to take a well calculated economic risk and invest in a company with a convincing business model and plan? It’s not supposed to lead to a high-stakes bet on a company that creates nothing of value to anyone and has a business model that Google’s been publicly unhappy with for some time. Why bother with due diligence if you’re just going to bet the farm anyway?

During the course of my research, I talked to people who felt — like the FP magazine writer and the commenters quoted above — that American Capital absolutely had to have known what Geosign was all about, but I also spoke with others who had a different take on the issue. One knowledgeable former employee made the point that there were many investors sniffing around Geosign and that American Capital may have felt pressured into acting fast. He also said there were a lot of red flags about Nye and Geosign that should have worried perceptive potential investors — including the type of people Nye surrounded himself with. And then of course, there are the other points I’ve raised in the past, which no one’s ever really addressed.

Finally, the journalist who wrote the FP Magazine story made a big mistake when he wrote that “American Capital’s latest securities filings peg Moxy Media’s value at US$128 million – which means the sum of Geosign’s former assets are worth less than American Capital’s original minority investment.”

What the 10K actually says is that American Capital invested $128 million, which is a huge difference and has nothing to do with the actual worth of Geosign today. (BTW, if any of you accounting types can explain why the last column in the Geosign lines is empty, I’d be most grateful)

So bottom line: Geosign or Moxy Media, if you will, is worth zero apart from SWI. And, while I could always be shown to be wrong, I’m sticking with my theory that American Capital was suckered. And I’d be willing to bet that over the next year, one or more of the people who made the deal will be gone.

Any takers? The wager’s for a lot less than $160 million.

Did Geosign fool American Capital?

One of the big questions I’ve had all along is whether American Capital actually knew it was buying into an arbitrage play with Geosign, or whether the private equity company really believed, as its press release made out, that it was getting a share of an innovative internet publisher. I lean toward American Capital getting suckered due to 1) the wall of silence and 2) this indiscretion on the part of Geosign founder Tim Nye 3) the fact that Mark McQueen has good sources and a job that requires him to be careful about what he says.

The argument against American Capital being played for fools is that they did tremendous due diligence, yada, yada, yada, but there are plenty of stories about investors who supposedly did their due diligence losing everything.

Even those who concede that American Capital may have been fooled, like to point out $160 million is just a drop in the bucket for such a big player, and that the Geosign split wasn’t even announced as it wasn’t considered material to the company’s results. While that may be true, the Geosign debacle says that the people who worked on this deal didn’t have a clue what they were doing. It should have been clear to anyone — let alone supposed technology experts with MBAs and very large salaries to justify — that something was very strange about Geosign and Tim Nye.

None of this looks good for American Capital so it’s hardly surprising that, according to TheStreet.com, 7% of its stock is being shorted.

Sources needed for another crack at Geosign story

Now that there are reports of an American Capital/ Geosign split, I’d like to take another crack at this story, but I need sources.

In the past some of you have been very helpful and I have respected requests to keep it off the record. As you can see from reading past coverage, no one has been outed. And you can judge the quality of reporting yourselves for an indication of what’s to come.

So, consider this an official bleg. Please get in touch if you have inisghts into the latest news.

Have American Capital and Geosign split?

Finally turned up a link to the story on the alleged American Capital split with Geosign and, if it’s all true, that’s one expensive divorce.

The biggest problems with the article are that a) it’s not clear about who got what and b) there are no sources other than a True Local spokeswoman whose name has been misspelled. And since “spell it right” is the first thing they teach you at journalism school, that’s not a good sign.

On the other hand, Mark McQueen thinks that where there’s smoke there’s fire and he appears to have some very good sources.

Still, I’m curious as to what sites exactly American Capital supposedly got and what eMedia ended up with. I always have to laugh when I hear True Local referred to as a search engine given how useless it is. Earlier this year, I made that point to an email correspondent who replied: “Being a linux geek living in waterloo, on, i poppled over to ‘truelocal.com’ and asked for the results on searching for ‘linux’ in ‘waterloo, on.’ i won’t spoil the surprise, try it yourself.” Check it out.

Meanwhile, no heads appear to have rolled at American Captial where their crack “technology team” wasted a lot of shareholder money on a bunch of worthless web sites.

If you have info, we’d still love to get to the bottom of this story.