
Direct Digital Holdings, an AdTech company based in the Galleria, has completed its initial public offering. It raised $15 million by offering 2.8 million units (20%) at $5.50.
The company originally planned to offer 4 million shares at a range of $7 to $9. The recent stock market turbulence caused the company to reduce terms twice.
The company is a full-service advertising platform, primarily focused on providing advertising technology, data-driven campaign optimization to underserved and less efficient markets. The business was formed in 2018 by the merger of Huddled Masses (which focused on the buy-side) and Colossus Media (sell-side).
Expensive acquisition
However, digging into the S-1 registration statement, you find the real reason for the IPO.
In September 2020, the business acquired Orange142, a buy-side digital advertising business, based in Austin, for $26.2 million. $12 million was paid in cash, funded by a term loan with a 16% interest rate. The rest was funded by an issue of shares ($4.3 million) and mandatory redeemable units ($9.9 million, that have an interest rate of approximately 8%).
For 2019, Orange142 had revenues of $17 million. However, it had a large client who transitioned their work in-house right after the acquisition. That client had revenues of $5.7 million in the 9 months to September 2020, but only $0.7 million in the 9 months to September 2021.
The proceeds of the IPO are being used to buy out the seller of Orange142 by buying back the shares and mandatory redeemable units.
Customers
For the 9 months to September 2021, the company had approximately 158 customers on the buy-side . These are advertising buyers at small and mid-size companies and advertising agencies. In the same time, the company worked on 1,300 individual campaigns. Sell-side clients include the US Army, Just Energy, and Visit Colorado Springs.
For the 9 months to September 2021, the company had revenues of $25 million and adjusted EBITDA of $4.5 million. The revenue was a 29% increase on the prior period, with the original business growing 57% and Orange142 growing 17% (even after the customer loss).
Management
The business was formed by Mark Walker (who acts as Chairman & CEO) and Keith Smith (who is the President). Each owned 50% prior to the IPO. Both hold B.A. in Economics from The University of Texas.
Mr. Walker worked for NRG Energy from 2005 to 2016. From October 2016 to May 2019, he worked at CVG Group, a private equity firm, primarily as Acting COO for Ebony Media Operations.
Mr. Smith has an investment banking background and has worked for Standard & Poor’s, Rabobank International and Capital Point Partners. Most recently, he was CEO at Parkview Capital Credit, where he invested and managed more than $75 million with small and mid-sized companies to provide acquisition and capital growth.
Mr. Smith also acted as the CFO of the company, until the hire of Susan Echard in 2021. She originally joined the company as a consultant at SeatonHill LLC in February 2021. She became the CFO in May and a full-time employee in January 2022.
The shares will be listed on the Nasdaq under the symbol DRCT.
SEC filing – Direct Digital Registration Statement