Starcom CEO’s link with Tremor Video IPO raises conflict of interest issue

You can gauge the ebullience of equity markets these days from the number of obscure digital media companies with dodgy profit and loss accounts that are confidently seeking an IPO (or listing on the stock exchange as it is more commonly known). They’ve never had it so good… since 1999.

Right now video ad networks – companies that provide a digital video platform for the big marketing services groups serving their ads online –  are flavour of the month. The “space” is currently dominated by Google’s YouTube and Hulu (which you may also have heard of). But video industry experts expect YuMe and Adapt.tv (which you won’t have done, unless you’re in the biz) to declare their hand.

In fact one of them already has: Tremor Video, a big video ad network that has long been eyeing a public listing, announced its IPO a few days ago. It’s typical of the breed. Last year the company lost $16.4m on revenue of $105.2m, the previous year $21m on revenue of $90.3m. But hey, what’s a big red hole when margins are improving and losses decreasing? The stock market is not about today, it’s about tomorrow: and Tremor is selling a great tomorrow, about $86m-worth of it, it hopes, on the NYSE. Already Tremor runs ads on over 500 websites and mobile apps: that figure can be expected to increase exponentially with all the publicity attending a flotation.

So far, so dull. But don’t nod off, because things are about to become considerably more interesting. Tremor has lots of admirers in the business. One of them is Starcom MediaVest Group, owned by Publicis Groupe – which is nearly, but not quite, the world’s largest media buyer. So, a friend worth having you might say. In fact, SMG likes Tremor so much that its business accounts for nearly 20% of the video ad network’s revenue, so I’m told . What that says about PG’s in-house alternative Vivaki I’m not quite sure; maybe things aren’t working out there as well as they should be. But it’s one hell of a vote of confidence in Tremor.

And perhaps that’s as it should be. Except… my eye was caught by a further disturbing detail in the S-1 – a simple IPO pathfinder document filed with the SEC. One of Tremor’s principal directors is Laura Desmond. Not, by any chance that same Laura Desmond (pictured) who has been global CEO of SMG since 2008? I fear it may be the self-same. If so, she’s a very provident – and lucky – woman. Because a small fortune is coming her way very soon. Desmond (that’s Tremor Desmond) was only one of two Tremor board directors to get paid last year: she received a full grant of nearly $300,000 in share options, plus another $175,000-worth which can be vested in equal amounts every month over the next four years. Quite a tidy sum, you’ll agree. But that’s not the full measure of it. The options, I’m told, have been awarded in nominal 2012 terms – at about $1 per share. And should the IPO striking price be $10 per share? Imagine – $3m, or thereabouts.

Enough, certainly, to pay for that sailing trip round the world which the other Ms Desmond has been promising herself for some years.

UPDATE  4/7/2013: Tremor Video’s IPO got off to a rocky start last Thursday, and Laura Desmond may not collect quite so much as she hoped when passing “Go”. The flotation price was $10 per share (as predicted above), below hopeful initial forecasts of $11-13. However, the stock has since spiralled down to a tad under $8. Ms Desmond need feel little despondency, however. There is still a tidy package coming her way. By my calculations (based on the S1 012 Director compensation table), she has already vested over 35% of her 175,000 stock options. Meaning she can cash them in at any time. The rest she must accrue at the vesting rate of 1/48 a month until January 19th 2016. No doubt she would be wise to wait a while until crystallising her nest-egg. At $10 per share, the options would be worth – hardly rocket science – $1.75m. She may – we don’t know this for certain – have to pay the strike price of $3.34 per share, which would reduce her total haul to about $1.2m. Still enough for that ocean cruise, though….

One PPS. Some readers of my original article made the fair point that there is nothing untoward in SMG representing such a large proportion of Tremor’s revenue: it is, after all, one of the world’s largest media buyers. Up to a point, Lord Copper. Pretty precisely, SMG accounted for 17.8% of Tremor’s revenue in 2012. On the above rationale, you would expect GroupM, which is even bigger than SMG, to account for an equivalent portion of that revenue. It does not. As far as I can make out, it spent only $7.5m through Tremor during the same period, a tiny amount by comparison, and has only one major client with them, AT&T. Could be a coincidence, of course. On the other hand, investors should be on their guard that Tremor does not screw up its special relationship with SMG.