Filing Details

Jonathan Brolin

2 Depot Plaza

Bedford Hills

New York 10507

(914) 239-3117

(Name, Address and Telephone Number of Person Authorized to Receive

Notices and Communications)

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This Schedule 13D is being filed jointly by (i) Edenbrook Capital, LLC (“Edenbrook”), a New York limited liability company, as the investment manager to certain private investment funds, with respect to Common Stock owned by such private investment funds, (ii) Edenbrook Long Only Value Fund, LP (the “Fund”), a Delaware limited partnership, with respect to Common Stock owned by such private investment fund and (iii) Jonathan Brolin (“Mr. Brolin”), a United States citizen and the principal of Edenbrook with respect to the Common Stock owned by such private investment funds (collectively, the “Reporting Persons”).

Mr. Brolin’s present principal occupation or employment is acting as a private investor. The principal business address of Mr. Brolin, Edenbrook and the Fund is 2 Depot Plaza, Bedford Hills, New York 10507. Mr. Brolin is the Managing Member of Edenbrook and, as such, is in the position to determine the investment and voting decisions made by Edenbrook.

Edenbrook, a shareholder of the Issuer for over three and a half years, believes that this transaction significantly undervalues the Issuer and asks that the Board of Directors of the Issuer abandon this transaction on these terms and pursue other paths for creating value for all of the Issuer’s shareholders.

The current market price reflects an enterprise value of approximately $90 million, after accounting for the $41.3 million in cash and marketable securities on the Issuer's balance sheet at September 30, 2017. Edenbrook believes that this valuation is much too low, at barely 3.5 times trailing twelve months adjusted EBITDA, the Issuer's primary metric for assessing its profitability. By comparison, when the deal was announced twelve weeks ago, the implied multiple RhythmOne was paying was over 5x adjusted EBITDA. Further, the press release announcing the deal called for anticipated operating synergies in the first year of $10-12 million. At the same 5x multiple that RhythmeOne offered, those synergies are worth $50-60 million, implying an effective residual enterprise value today for the Issuer of just $35 million at the midpoint, less than 1.5x trailing adjusted EBITDA.

Edenbrook believes that the current deal significantly undervalues the Issuer and that the implied multiples described above are way too low for a business with: 1) a profitable, cash generative business model with a strong balance sheet; 2) a path to accretive growth; 3) a strong book of business amongst top customers; 4) robust gross margins; 5) a unique product offering in a secularly attractive industry, with proprietary data and consumer insight capture that allow the Issuer to deliver improved results for its customers; and, 6) premium video supply, including high value, scarce connected TV inventory. Further, in light of the industry-wide issues regarding video ads running near inappropriate content, Edenbrook believes that the Issuer’s proven capabilities in brand safety for high quality advertisers should afford the Issuer a scarcity value that is not reflected in the current valuation. Comparable transactions have been done in the 8-10x EBITDA range, further suggesting that the valuation is lacking.

In contrast to the well-lit environment that the Issuer provides for its advertisers, investors have been left in the dark as to the merits of this transaction. There was no conference call following the announcement to explain to investors why this is a good transaction and why investors should want to hold stock in the acquiror, given the high stock composition (approximately 2/3 of the consideration at announcement). Nor has there yet been a definitive merger agreement filed to explain the history of the transaction, a document that was expected almost

two months ago. Further, in conjunction with the end of its third quarter, the Issuer held neither a conference call nor issued a press release providing context around the quarter, but simply filed a quarterly 10-Q. While it’s not unusual to skip a conference call during an acquisition process, it is unusual to not have a press release. Investors lack context for understanding whether business trends changed in the last four weeks of the third quarter after the deal was announced, whether sales people were distracted by the pending deal or whether other factors were at play. Because the last month of the quarter has historically been the biggest contributor of revenue in the quarter, Edenbrook believes such context is important.

The proposed deal does not feature a “go shop” provision, but the Board of Directors of the Issuer is obligated to listen to superior proposals. Securing such proposals has been made more difficult because shareholders who each own over 10%, and combined own over 31.6%, of the Issuer have agreed to go along with the transaction. This agreement further limits the opportunity to maximize value. Given the big gap between the current price and the value implied on the date of the announcement, Edenbrook believes there is a lot of room for a cash offer that would be superior to the current deal.

Edenbrook does not believe that this deal is the best the Issuer and its Board of Directors can do. Edenbrook understands the need for increasing scale in the industry, but why shouldn’t the Issuer be a platform for consolidating the industry, rather than the target of a low valuation offer? Edenbrook believes that the Issuer has done an admirable job of taking excess costs out of the business and generating profitability over the past two years. Why not take that playbook and become a consolidator, perhaps with the backing of a private equity firm?

Edenbrook believes that all shareholders would benefit from pursuing a different path, whether better terms in this deal, a better overall deal with another party or, given this low valuation, simply staying public and revisiting a process down the road. If the current Board of Directors is fatigued and doesn’t want to pursue a better deal for all shareholders, let the holders of 68.4% of the Issuer’s shares who haven’t agreed to this deal find a better outcome.

As of the date hereof, (i) Edenbrook and Mr. Brolin may be deemed to be the beneficial owners of 2,431,187 shares of Common Stock, constituting 6.96% of the shares of Common Stock, based upon 34,946,078 shares of Common Stock outstanding as of October 31, 2017, as set forth in the Quarterly Report on 10-Q for the quarterly period ended September 30, 2017 filed by the Issuer on November 8, 2017, and (ii) the Fund may be deemed to be the beneficial owner of 1,872,371 shares of Common Stock, constituting 5.36% of the shares of Common Stock, based upon 34,946,078 shares of Common Stock outstanding as of October 31, 2017, as set forth in the Quarterly Report on 10-Q for the quarterly period ended September 30, 2017 filed by the Issuer on November 8, 2017.

Edenbrook has the sole power to vote or direct the vote of 0 shares of Common Stock; has the shared power to vote or direct the vote of 2,431,187 shares of Common Stock; has the sole power to dispose or direct the disposition of 0 shares of Common Stock; and has the shared power to dispose or direct the disposition of 2,431,187 shares of Common Stock.

The Fund has the sole power to vote or direct the vote of 0 shares of Common Stock; has the shared power to vote or direct the vote of 1,872,371 shares of Common Stock; has the sole power to dispose or direct the disposition of 0 shares of Common Stock; and has the shared power to dispose or direct the disposition of 1,872,371 shares of Common Stock.

Mr. Brolin has the sole power to vote or direct the vote of 0 shares of Common Stock; has the shared power to vote or direct the vote of 2,431,187 shares of Common Stock; has the sole power to dispose or direct the disposition of 0 shares of Common Stock; and has the shared power to dispose or direct the disposition of 2,431,187 shares of Common Stock.

The Reporting Persons specifically disclaim beneficial ownership in the shares of Common Stock reported herein except to the extent of their pecuniary interest therein.

Exhibit A: Joint Filing Agreement

Exhibit B: Schedule of Transactions in Common Stock

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