M&A Alert - November 9, 2009
Google Agrees to Acquire AdMob
Transaction Overview
On November 9, 2009, Google (NASDAQ: GOOG) agreed to acquire Admob for $750mm in Google stock.
Target Description
AdMob is one of the largest matchmakers between 1) mobile advertising inventory (the ad space) created by mobile publishers and application developers and 2) advertisers who want to place marketing and advertising messages within that mobile ad space to promote their products or services (“brands” and their partners, the advertising agencies). By virtue of acting as a clearinghouse between mobile ad inventory creators and advertisers, Admob also collects valuable data on consumer behavior which provides insights into preferences and interests, both of which are of high value to advertisers and marketers. Admob has 140 employees and its clients include Ford, Proctor Gamble, Starbucks and ESPN and over 15,000 mobile websites and applications. Since inception, Admob has received $47.2mm funding from Accel Partners (Partner: Rich Wong), Sequoia Capital (Partner: Jim Goertz), Draper Fisher Jurvetson (Partner: Mark Bailey) and Northgate Capital. Admob’s key competitors include AOL/Third Screen Media, Millennial Media, JumpTap, Mojiva, Quattro Wireless and Microsoft’s MSN Ad Network. Admob was founded in 2006 and is based in San Mateo, California.
Buyer Description
Google offers targeted online and mobile search advertising services to users and advertisers. Over the past several years, Google has made a substantial investment in playing a major role within mobile led by their open source mobile operating system Android. Susan Wojcicki, VP of Product Management and Vic Gundotra, VP of Engineering were key executive sponsors of this transaction. Google was founded in 1998 and is based in Mountain View, California.
Admob’s revenues are derived by sharing revenues with the creators of the mobile advertising inventory, the publishers and application developer 40%/60%. Admob’s revenue run rate is reported to be approximately $40mm (Admob’s 40% share, generally know as net revenue) and is cash flow positive.
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| Equity Value of Consideration: | $750mm |
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| Equity Value Multiple: | |
| Net Revenue Multiple1 | 18.75x |
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1) Net Revenue Multiple is based on reported gross revenue run rate of $100mm (source: TechCrunch)
Strategic Rationale
Google has been perfectly transparent that it intends to play a major role in enabling the monetization of mobile services and applications, much as it has done in the online world. Google’s already strong position in mobile search advertising is nicely complemented by AdMob’s focus on mobile display advertising/marketing. Albeit at a far earlier stage of market development, AdMob brings some similar capabilities to Google’s mobile display advertising that the DoubleClick acquisition did for their online display advertising/marketing. Google has nicely articulated the strategic rationale underlying the Admob acquisition in this post. Admob represents Google’s third largest acquisition to-date after DoubleClick for $3.2b in 2008 and YouTube for $1.6b in 2006.
Architect Partners’ Observations
While still very small, mobile marketing and advertising will be an increasingly important element for monetizing mobile content, services and applications in the future. Google executed what we refer to as “the Cisco strategy” in this acquisition, e.g. paying a large premium for a highly strategic acquisition. Doing so tends to raise valuation expectations of other would be sellers and materially frustrates other prospective buyers, effectively freezing the M&A market for comparable acquisitions for all but the most motivated buyers.