COMSCORE, Inc. (NASDAQ:SCOR) said that it will buy Rentrak Corporation (NASDAQ:RENT) in an all-stock deal, creating a firm that provides analytics and data services for the web, mobile, media, television and marketing industries which may rise to rival dominant player Nielsen Holdings PLC (NYSE:NLSN). Shares of COMSCORE and Rentrak each gained over 8% and nearly 13% in after-hours trading after the announcement. However, Insider Monkey data show that hedge funds either did not foresee this development, or considered that a potential deal will not bring a lot of value, which is not surprising taking into account that both stocks have declined significantly since the beginning of 2015.
General opinion is that hedge funds underperform the S&P500 based on net returns. But we are missing something very important here. Hedge funds generally pull in strong returns from their small-cap picks and invest a lot of their resources into analyzing these stocks. They simply don’t take large enough positions in them relative to their portfolios to generate strong overall returns because their large-cap picks lagged the market. We share the top 15 small-cap stocks favored by the best hedge fund managers every quarter and this strategy has managed to outperform the S&P 500 ETF (SPY) every year since it was launched in August 2012, returning 118% and beating the market by over 60 percentage points (read more details). Because of this, we know that collective hedge fund sentiment is extremely telling and valuable.
COMSCORE, Inc. (NASDAQ:SCOR) said that the acquisition of Rentrak Corporation (NASDAQ:RENT) in which each Rentrak share will be converted to the right to receive 1.5 shares of COMSCORE, is expected to close in early 2016. COMSORE shareholders are expected to own about 66.5% of the combined firm while Rentrak shareholders will own the other 33.5% on a fully diluted basis. The deal will be mildly dilutive to non-GAAP EPS in 2016, the firm noted, and will be accretive the following year. The deal has been approved by both of the companies’ Board of Directors.
The acquisition, in which Rentrak will become a wholly-owned subsidiary of COMSCORE, will create a combined firm that is best positioned to provide measurement services to the media and advertising industries, the firms said, aimed at following the consumer across multiple media consumption platforms. Serge Matta, COMSCORE chief executive officer, said in a statement that the combination is all too timely because of the advent of digital technology warranting the need for cross-platform measurement systems. This is especially important as the way people consume media has been rapidly changing as can be seen in the rise of video-on-demand services and Internet media consumption. The combination of the firm’s knowledge, experience and expertise is expected to form a unique company which they say cannot be rivaled by any other organization.
Serge Matta will become the CEO of the combined company, while Dr. Magid Abraham will retain his post as Executive Chairman of the Board. Bill Livek, Rentrak’s current Vice Chairman & CEO, will become the company’s Executive Vice Chairman & President. Mel Wesley will likewise stay as the firm’s Chief Financial Officer, while David Chemerow, Rentrak’s current COO & CFO, will become a strategic advisor to the CEO, particularly in the integration of the two firms.