💥New Chapter 11 Bankruptcy - Digital Media Solutions Inc.💥
A failed adtech company and beleaguered prepetition lenders walk in a bar...
On September 11, 2024, Florida-based Digital Media Solutions, Inc. and 36 affiliates (collectively, the “debtors”) filed chapter 11 cases in the Southern District of Texas (Judge Perez).
We’ve been harping on this name for over a year now:*
The debtors are a “leading technology-enabled digital advertising company” that was taken public through a SPAC transaction courtesy of Lion Capital-backed, Leo Holdings Corp in ‘20. Which was just in time for advertising spend to start taking a nose dive in ‘22! The debtors were also overly dependent on one specific industry — auto insurance.
The auto insurance industry was coming off record low loss ratios due to COVID and had money to spend on advertising during that period. However, loss ratios took a turn for the worse in ‘22 and, consequently, advertising spend declined significantly.
Here’s the CEO, Joe Marinucci, on the impact of that decline, pulled from the first day declaration:
“This trend contributed to a 15.3% decrease in the Company’s net revenue for the fourth quarter of 2022, as compared to the fourth quarter of 2021; a 17.2% decrease in the Company’s net revenue for the first quarter of 2023, as compared to the first quarter of 2022; and a 9.5% decrease in the Company’s net revenue for the second quarter of 2023, as compared to the second quarter of 2022.”
For additional context, the debtors’ EBITDA dropped from $58mm in FY’21 to $25.7mm in FY’22 … to $9.9mm in FY’23.
Amidst these operational challenges, the debtors decided to burn some more cash on the $35.3mm acquisition of G.D.M Group Holdings Limited (d/b/a ClickDealer) in March ‘23. We’ll let Mr. Marinucci speak on the results of that acquisition:
“While the acquisition of HomeQuote.io and the ClickDealer assets expanded the Company’s operations into the home services industry and the European market, the acquisition ultimately underperformed expectations due to operational integration challenges.”
“Underperformed” is putting it lightly. ClickDealer did $80mm in revenues for FY’22. Post acquisition, the debtors saw revenues decline by 14.4% in FY’23 and EBITDA margins declined from 6.6% in FY’22 to 3.0% in FY’23.