WPP Group USA Inc. lost more than $120 million in its 2016 purchase of Triad, a digital retail media company in St. Petersburg, according to a lawsuit.
Triad failed to provide updated financial information before the deal closed, artificially inflating the value of the company, WPP said in the lawsuit, filed Nov. 15 in New York against two private equity firms that previously owned Triad, three former Triad executives, and an insurance company that agreed to indemnify WPP against losses.
WPP, the world’s largest advertising company, paid $300 million for Triad, headquartered in Carillon and one of the largest marketing firms in the Tampa-St. Pete area. The sellers were Rockbridge Growth Equity, a Detroit private equity firm co-founded by Dan Gilbert of Quicken Loans, and Falcon Investment Advisors in Boston, as well as Triad founder Greg Murtagh and Triad’s CEO at that time, Roger Berdusco. Tom Baumlin, who was Triad’s chief financial officer, also is named in the suit.
“As a matter of policy, Rockbridge does not comment on ongoing litigation. That notwithstanding, the complaint does not attribute any allegations of wrongful acts to Rockbridge, including that Rockbridge made any misrepresentations, and Rockbridge categorically denies that there are any credible facts to support any claims made against it in the lawsuit,” Rockbridge spokesperson Tom Goulding said in an emailed statement published by Crain’s Detroit Business. “Rockbridge intends to defend against the lawsuit vigorously, and we are confident the court will agree with our assessment.”
Rockbridge and Falcon did not immediately respond to the St. Pete Catalyst’s request for comment on the lawsuit.
Triad sells, manages and executes digital retail media programs for retail media platforms such as websites, mobile and in-store TVs. Triad enables large retailers to run third-party advertisements on those media platforms, so they can engage consumers as they shop online and create an additional revenue stream for the retailer.
In 2016, Walmart (NYSE: WMT) was Triad’s largest retail client and the largest single source of Triad’s revenue, the lawsuit said.
WPP based its purchase price on financial projections provided by Triad, including how much revenue the company expected from Walmart. When the deal closed on Nov. 17, 2016, Triad had said it expected 2016 gross revenue of $538.8 million, net revenue of $129.4 million, earnings before interest, taxes, depreciation and amortization of $26.1 million, and gross revenue as to Walmart of $258.1 million.
“However, on Dec. 1, 2016, just two weeks after the closing, the company group shared with WPP executives, for the first time, a revised forecast for 2016 that fell tens of millions of dollars below what had been disclosed to WPP before the closing,” the lawsuit said. “In other words, just two weeks after the closing, WPP was told the company was not worth anything close to the $300 million purchase price it had just paid.”
The Dec. 1 revised forecast was shocking to WPP, but not to Triad executives, who had known the financial numbers in the days leading up to the closing and had even shared them with Walmart, according to the lawsuit. While projections are forward-looking and not a guarantee of performance, WPP said it should have been given the revised forecast prior to closing.
“The failure to accurately disclose and update Triad’s projected 2016 performance dramatically inflated Triad’s value, leading WPP to purchase Triad for at least $120 million more than the company was really worth,” the lawsuit said.
The sellers and Triad’s core management team had agreed to indemnify WPP against losses arising from a breach of representations at the closing and from losses arising from “actual fraud.”
WPP is alleging both breach of contract and actual fraud and is seeking $120 million from the sellers plus attorney’s fees and interest, capped by the proceeds each seller received. For Rockbridge, that was $101.6 million, while Falcon received $32.8 million, according to the lawsuit. Murtagh received $29.8 million, Berdusco got $10.6 million and Baumlin received $856,911, the lawsuit said.
WPP also is seeking $40 million from PartnerRe Ireland, the company that sold WPP indemnity insurance. PartnerRe denied WPP’s claim for losses in May 2019, the lawsuit said.
In 2016, Triad had $509.3 million in gross revenue, $115.6 million in net revenue, almost $13 million in EBITDA, and $239.4 million in gross revenue from Walmart, millions of dollars short of the projections Triad had provided when the deal closed.
Triad’s 2016 shortfall was not a “one-off blip,” the lawsuit said.
Results for 2017 included $399.2 million in gross revenue, $89.9 million in net revenue, and $6.7 million in EBITDA, while gross revenue from Walmart was nearly flat between 2016 and 2017, at $241.2 million, according to the lawsuit.
In September 2017, Triad named Sherry Smith as CEO, succeeding Berdusco. In February 2019, Triad Retail Media rebranded as Triad, in a move that Smith said reflected the company’s work with brands and consumers, in addition to retailers.
That same month, Ad Age reported Walmart was taking in-house the website ad sales and related analytics work previously handled by Triad. In August, Walmart was running into some unexpected glitches as it moved the work to its in-house team, Ad Age said.
A May report from the Wall Street Journal said Target Corp. was in talks to buy Triad.