M&A Alert—November 10, 2016
Adobe acquires video advertising platform TubeMogul for $540 million
Author: Eric Risley, John Ascher-Roberts
Transaction Size: $540mm
On November 10, 2016, Adobe (NasdaqGS: ADBE) announced an agreement to acquire video demand side platform provider TubeMogul (NasdaqGS:TUBE) for $540 million in all-cash deal.
TubeMogul offers software to help large companies manage their brand building-focused video advertising efforts. Known as a “Demand Side Platform,” serving the buyers of advertising, TubeMogul’s cloud-based software allows advertisers to plan, programmatically buy, measure, and optimize their online, mobile and television video advertising from a single dashboard.
The company counts many major brands as customers such as Adidas, BRP, Clorox and Diageo as well as agencies like AMP Agency, Audience Group, Bohemia and Cadreon.
Brett Wilson, CEO, and John Hughes, President of Products, co-founded the Emeryville-based company in 2007. The company went public in July of 2014 and priced at $7.00 a share with a market capitalization at the time of $244M. The company now has LTM revenues of $212M and is unprofitable with an EBITDA loss of $(20.3)M. TubeMogul has roughly 654 employees today.
Adobe has three business units, Creative Cloud serving creative professionals, Marketing Cloud serving marketing professionals and Document Cloud which helps companies manage digital content. Adobe Marketing Cloud offers marketers real-time dashboards and marketing tools that combine data, insights and digital content to deliver unique brand experiences. Marketing Cloud is comprised of Adobe Analytics, Adobe Target, Adobe Social, Adobe Experience Manager, Adobe Media Optimizer, Adobe Audience Manager and Adobe Campaign.
Brad Rencher, Adobe executive vice president and general manager of its digital marketing division, was the champion of the TubeMogul deal.
Adobe last closed at $107.86 a share with a market capitalization of $53.6 billion and has $5.55 billion in TTM revenue ending September 02, 2016.
Adobe is purchasing TubeMogul for $540 million, all of which will be paid in cash, at $14 a share, representing an 83% premium to its closing price prior to announcement.
Transaction Value: $540M
TEV / LTM Revenue 2.5x
Comparable transactions include News Corp’s acquisition of the Unruly Group in September of 2015 for $177M (7.1x invested capital), Yahoo’s acquisition of Brightroll in November of 2014 for $640M (6.4x LTM revenue, covered here), Facebook’s acquisition of Liverail in July of 2014 for between $400-$500M (4.0x-5.0x LTM revenue, covered here), and AOL’s acquisition of Adap.tv in August of 2013 for $405M (8.4x invested capital, covered here).
Although TV still makes up the majority of the US video ad spend, digital video ad spending continues to be one of the fastest growing ad mediums today. eMarketer expects to see double digit percentage annual growth rates with the market for digital video ads growing from almost $10 billion today to $17 billion in 2020.
While the Adobe Marketing Cloud has some limited video advertising capabilities through its Premiere CC and Primetime solutions within its Adobe Experience Manager, this acquisition substantially augments their video capabilities. TubeMogul also complements 1) Adobe’s data management platform, Adobe Audience Manager, to better target and optimize video ad spend and 2) Adobe Media Optimizer, with access to video advertising inventory from most major ad exchanges and networks Google AdX, Rubicon, Facebook Exchange, OpenX, PubMatic, AppNexus and Microsoft Ad Exchange.
Architect Partners’ Observations
This acquisition continues to show Adobe’s ongoing commitment to primarily serve the needs of advertisers (the so called demand side) vs. the needs of publishers (the supply side). This is an important differentiator from many of their conflicted competitors (Facebook, Google, AOL, Yahoo) who sell their own advertising inventory to advertisers AND cynically control the assessment of how “amazingly” effective such ads were; feeding a self-fulfilling virtuous cycle, for them.
Separately, the $540M sale price ended a rather volatile rise and fall of TubeMogul’s stock price since its IPO. TubeMogul’s stock peaked at $22 a share in December of 2014, six months following their IPO, before dropping to its closing price of $7.67 a share prior to the acquisition announcement.
Part of this decline is the intense competitive environment with Google limiting direct access to its ad exchange (DoubeClick Ad Exchange) for ads on YouTube, cutting off some companies like TubeMogul from directly buying YouTube ads, as reported in the WSJ. Additionally, companies like Google and Facebook have become more guarded with their audience data and have limited TubeMogul and other demand side platforms’ ability to track ad viewability or to simply gauge how many people were exposed to a video ad campaign on Google and Facebook’s websites and applications. This has significantly hurt TubeMogul’s and others (i.e Rocket Fuel’s) value proposition and their valuations have felt the effects.
As CEO Brett Wilson put it on their last earnings call: “We’re selling primarily to brand advertisers. They care a lot about video, and they care whether or not their video ads have the opportunity to be viewed.”