At the start of this year, the parts of CoolSign that were not sold to Bally Technologies back in November 2007, were sold by Planar (PLNR) a Portland, Oregon maker of high end LCD screens to CS Software Holdings, LLC
Planar had picked up CoolSign as part of its USD 46 million dollar acquisition of Clarity Visual Systems. Clarity in turn had picked up CoolSign (the brain child of industry guru Lou Giacalone) for almost next to nothing after CoolSign had been injected with USD 20 million in VC money in the late 1990’s and early 2000’s but failed to deliver (meaningful) sales.
With good yearly sales figures of approximately USD 6 million we believe that CoolSign was sold this last time around for anywhere between USD 1 million and USD 3 million – with the best estimates being that it was sold closer to USD 1 million rather than 3 !!!
This would be ‘sold for a song’ whichever way you analyse it but especially so if you consider the large ‘investment’ (aka losses) made and sustained by Planar in CoolSign during the former’s ownership of the latter.
Good Deal / Bad Deal
All well and good, but what does this and other information gleaned from the corporate machinations of Planar and other high profile digital signage companies tell us about what is going on and what we can expect in the future? What has gone right and wrong with ‘the deals’ in the industry to date?
As has been reported elsewhere Planar had the idea, as many hardware companies did / do, that having a software business as a bolt on sale to their existing LCD business would be ‘easy’ and somehow be a natural fit. It wasn’t and Planar also, unfortunately had other issues to deal with…
I believe that Planar combined a naive understanding of the software business with the even greater sins of arrogance and lack of leadership. In fairness to Planar they made many important improvements to the product but they simply did not understand or care to understand the nature of the digital signage industry (and certainly did not listen to many of the folks employed to run CoolSign).
First off, Planar did not understand that the digital signage business is still largely an entrepreneurial business. Almost all efforts, if NOT every effort, to pour large amounts of investment capital into the sector in order to ‘buy’ success has failed to date.
The history of CoolSign is case study number one for this observation (there are many others) – as Warren Buffett has said “the only thing to know about history is that people do not read history” – in this particular case, not even the history of the product they were acquiring.
Instead of immediately cutting overheads and running CoolSign like a start up (which it was) they hired highly paid executives and sales people who were used to getting the ‘big bucks’ selling hardware and expensive services.
When Planar acquired CoolSign they brought it into Planar’s beautiful class A office building in the technology corridor in the Portland area AND no doubt Planar’s management hit it also with the ‘appropriate’ corporate over head charges – as it would with any new business division.
These payments we would guess, also helped pay for the many more highly compensated VPs in the Planar organization and of course for the CEO.
Planar took CoolSign to every trade show in the US and often took out the largest space.
They poured money into the development of the product (which someone will eventually monetize – BUT not Planar) and reportedly had the software team on a monthly update cycle – a schedule that any software development company would find ludicrous!
Instead of partnering with content companies (like other digital signage software vendors have typically done) they started their own.
If you ever wanted to sell the product they had a large stack of over lawyered papers for you to sign – for example, even if you did not want to buy CoolSign on credit they wanted to know all your financial information. Oh, and did I mention the price point. It was the highest in the digital signage industry.
In short, they did everything ‘right’ if Planar/CoolSign had had an overwhelming market penetration and positive cash flow to support these activities which of course they didn’t!
A reasonably short time after Planar acquired CoolSign it also acquired a high end home theater business called RUNCO for USD 40 million in cash.
RUNCO never made a dime and started to immediately bleed lots of cash. If an analysis of Planar’s balance sheet is done just before and just after the RUNCO deal an argument can be made that Planar in effect traded USD 40 million in cash for a like amount of account receivables. This acquisition depleted any cash Planar had that could have been invested in a leaner, meaner CoolSign.
What can be learned?
- First, I believe that the digital signage business is still primarily an entrepreneurial one.
- The most important goal for a new business in this industry is to get to positive cash flow and stay there. If you cannot do that quickly you are fooling yourself and your investors.
Many companies, like Wireless Ronin (RNIN), who have taken on lots of investment capital are not doing well and will likely not emerge from this storm.
- Leadership and good management matters. The business world is going through a profound change right now. This is being driven by the breaking of the first ‘worldwide all asset class bubble’.
During the decade(s) that led up to this a premium was placed on style over substance – how else can you explain an executive buying a USD 35,000 toilet when his company is getting a bail out!!!
What looked good, was good, isn’t that right?
What the business world is learning now is that substance; a measurable track record, a history in this industry, hard work, drive, and yes leadership all count.