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Kevin Van Paassen

Eric Rosenfeld has carved himself a reputation in Canada as an aggressive New York hedge-fund manager who pushes underperforming small-cap companies to make tough, shareholder-friendly moves. Targets of his Crescendo Partners LP here have included Cott Corp., Spar Aerospace Ltd. and Geac Computer Corp.

For his latest Canadian deal, however, he's brought roses, not brickbats. On Monday, Mr. Rosenfed's publicly traded special-purpose acquisition – or "blank check" – company (SPAC) Harmony Merger Corp. announced it was doing a reverse takeover of little-known Toronto advertising technology company MundoMedia Ltd. The combined entity will have an enterprise value of $218-million (U.S.), with Mundo shareholders receiving $111.5-million in stock, $25-million in cash and an additional $28.5-million worth stock if the company hits set profit targets by 2018. The deal is set to close in March.

It's a friendly deal, and the fifth such transaction Mr. Rosenfeld has done involving shell companies whose single purpose it is to merge with a private operating company within a set time limit – or return the IPO proceeds (over $100-million in Harmony's case) to shareholders. It's actually Mr. Rosenfeld's second SPAC deal in Canada (his first was with Calgary-based seismic data services firm SAExploration Holdings Inc. in 2013) but first in the technology space.

"Crescendo looks at public companies with issues we can fix," said Mr. Rosenfeld. "With a SPAC we're looking at great private companies without issues that we can help take public…. Anything that we do has to be totally consensual. It's a totally different type of thing."

The online advertising world has a wild west reputation, particularly the so-called "affiliate marketing" space defined by intermediaries like Mundo that link digital advertisers and online publishers. But Mr. Rosenfeld insisted Mundo is "very different than your typical adtech company" as it has been profitable since it was co-founded in 2009 by 34-year-old CEO and serial entrepreneur Jason Theofilos, has quickly scaled up to more than $100-million in revenues by focusing on the mobile market, and boasts serious online players Baidu, Alibaba, Uber and Lyft as customers.

"When you dug into the client list it wasn't a bunch of fly-by-night nutraceuticals [ie-diet pill manufacturers] or companies that would come and go out of business," said chairman Ross Levinsohn, who joined Mundo last year after serving as a senior executive with Fox Interactive and Yahoo! "It was really a premier list of advertisers." Another selling point: 80 per cent of the Mundo's revenue came from customers using the platform since 2014

Mundo slowed the pace of marketing spending and revenue growth in 2016 (the topline grew by only 7 per cent, down from 24 per cent in 2015) while increasing profits by 31 per cent, to a projected $11.6-million. Mundo must earn $15.3-million this year and $21.5-million in 2018 to hit its earnout targets.

Mr. Levinsohn said he was drawn in part to Mundo as it doesn't get paid until it delivers on pre-arranged key performance metrics worked out with advertisers, such as number of app downloads or, in the case of ride-sharing services, new customers taking their first ride. "With Mundo's model, every dollar you spend is tracked and transparent," said Mr. Levinshon. "The analytics and performance are all critical to the industry going forward and I think Mundo has a great position in it."

Mr. Theofilos said Mundo had considered a traditional IPO before meeting Mr. Rosenfeld last fall. He said the process of going public will shorten from upwards of 18 months to less than six by doing a SPAC deal. "This will give us a public currency that we can [use] to incentivize employees and use as acquisition currency," Mr. Theofolis said. "So it was purely opportunistic – the right place, right time and right deal."

Other publicly traded adtech companies including The Rubicon Project, Inc. have fallen out of favor with investors. By quickly emerging as a public entity, Mr. Levinsohn said Mundo will be well positioned "to roll up parts of the industry. The best time to invest is when stocks are beaten down in a sector."

Mundo was advised by William Blair, Dorsey & Whitney LLP and Gowlings WLG, while Harmony was represented by Graubard Miller and McCarthy Tetrault LLP.

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