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November 24, 2020 – Further to a motion filed by the U.S. Trustee assigned to the Debtors’ cases, the Court hearing the Sizmek Inc. cases issued an order converting the Debtors’ Chapter 11 cases to cases under Chapter 7 [Docket No. 908].
The U.S. Trustee had argued [Docket No. 899] that, absent further expected proceeds from the sale of the Debtors’ Demand-Side Platform (“DSP”) and Data Management Platform (“DMP”) assets to Zeta Global Holdings Corp (“Zeta Global”), there is no prospect for funding the Debtors’ Chapter 11 cases. The Debtors and Zeta Global have been locked in an adversary proceeding since February 2020 over a variable element of the consideration to be paid by Zeta Global in respect of the DSP and DMP assets.
On March 29, 2019, Sizmek, Inc. and 7 affiliated Debtors (“Sizmek” or the “Company,” an independent buy-side advertising platform) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, noting estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn. At filing, the Debtors (press release here) cited an "over-leveraged balance sheet" and the decision of "the Company's primary lender…[to take]…control of the Company's bank accounts and…divert customer receivables, thereby cutting off access to capital."
The U.S. Trustee's requesting motion notes, “These cases were commenced 19 months ago and the Debtors have been unable to file a viable chapter 11 plan of reorganization or liquidation. At the outset of the case, the Debtors anticipated filing a plan with the proceeds of certain asset sales. To date, however, although the Court has approved the asset sales, the Debtors have been unable to collect all of the proceeds of such sales, and, as a result, the Debtors have no prospect of funding – and filing – a confirmable plan of reorganization or liquidation.
By Order entered on April 29, 2019, the Court authorized and approved a private sale of the Debtors’ “Demand-Side Platform and the Data Management Platform” (the 'Demand-Side Platform Sale') to Zeta Global Holdings Corp. ('Zeta Global').
On February 14, 2020, the Debtors commenced an adversary proceeding (the 'Adversary Proceeding') against Zeta Global, Adversary case 20-01015, alleging, inter alia, that Zeta Global had improperly refused to pay nearly $2 million in consideration under the Demand-Side Platform Sale. The Adversary Proceeding is still pending.
Given that the Debtors are involved in pending litigation, the Court should convert these cases to chapter 7 so as to allow a chapter 7 trustee to pursue the litigation and to administer the estates.”
Background on Zeta Global Sale
On April 29, 2019, the Court hearing the Sizmek case issued an order (i) authorizing the Debtors' private sale of the their Demand-Side Platform (“DSP”) and Data Management Platform (”DMP”) assets to Zeta Global Holdings Corp ("Zeta Global" or the “Purchaser”) for a price consisting of (a) $10.0mn in cash, (b) $2.5mn-$5.0mn in Zeta Global equity and (c) additional consideration keyed off of accounts receivable (eg, at $30.0mn of accounts receivable, the additional cash consideration would be $18.0mn) and (ii) to entry into an asset purchase agreement (the "APA") with the Purchaser in respect of the assets [Docket No. 143]. The Debtors had urged Court approval of the sale, citing the need for speed to save the DSP (and its revenues) from an inevitable shutdown. Complete details as to consideration begins on page 11 of the APA which is attached to the order.
According to the Company, “Sizmek is the world's largest independent buy-side advertising platform…. Sizmek operates its platform in more than 70 countries, with local offices in many countries providing award-winning service throughout the Americas, EMEA, and APAC, and connecting more than 20,000 advertisers and 3,600 agencies to audiences around the world.”
Sizmek was acquired by private-equity firm Vector Capital for $122 million in 2016. In an SEC filing at the time (Sizmek was ultimately delisted following the purchase by Vector and ceased its SEC reporting), Sizmek noted, “The purchase price was funded by equity financing from Vector Capital, debt financing from Wells Fargo Bank and certain other lenders and a portion of the Company’s cash on hand.”
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