By Nick Patience
Rare Medium Group Inc, the New York-based web design, development and marketing company has performed another unusual transaction designed to speed its expansion, this time securing a huge $75m private investment from Apollo Investment LP for 25% of the company, part of which Rare Medium will use to invest in and incubate internet start-ups itself. It is targeting investments in the $1m to $5m range. Rare has already closed one of its incubator deals with an investment in iFace.com, a computer telephony company. Apollo has an option in invest a further $75m, which would give it a 40% stake in total. It also gets to appoint three of the seven board members of Rare Medium. Rare is issuing new shares for the purpose, but the exact capital structure has not been finalized yet and no 8-K filing has been made with the Securities & Exchange Commission.
Rare will also use the money for working capital and plans to expand into Europe to add to its seven offices in the US. Rare Medium chief executive Glenn Meyers says the company is eying opportunities in the UK, Ireland and Germany. In addition, under the terms of the deal Rare Medium will get access to companies in which Apollo has minority investments, including Berlitz, Samsonite, Vail Resorts and United Rental, to which it can offer its various web services.
The investment comes at a crucial state in Rare Medium’s development, because with just $900,000 in cash as of December 31, the Silicon Alley company has spent the first quarter earnestly looking for investment, which it has obviously now secured. In January, the company raised $3.5m in a private placement of 8% convertible debentures and warrants with Capital Ventures International, which subject to certain conditions will invest in a second tranche for an additional $2.5m of similar debentures and warrants on or before May 28. The company’s annual 10-K filing made last week revealed that it had been threatened with delisting from Nasdaq-Amex in February, due to having a share price below $5 and tangible assets of less than $4m. Since then the company’s share price has risen sufficiently to alleviate that possibility.
This deal comes exactly one year since Rare Medium went public by reversing into air conditioner manufacturer ICC Technologies Inc, which officially changed its name to Rare Medium just last week. The move is similar in approach to the one taken by CMGI Inc and Softbank Technology Ventures, which also act as incubators for internet start-ups. But Meyers points to the fact that they did not have a pure web development business in their stable, so Rare will have an advantage in being able to control the way the start-ups in which it invests present themselves in the web. CMGI and Softbank have spawned some hugely successful internet companies, including Yahoo! Inc and E*Trade Group Inc, among others. Apollo is a nine year-old private investment company based in New York and Los Angeles. The announcement was made late Thursday and Rare’s stock closed up Friday $2.1875, or 21.9% at $12.1875.
