M&A Alert—May 6, 2014
AOL Acquires Marketing Optimization and Attribution Company Convertro for Up to $101mm
Author: Steve Payne
Transaction Size: $91 - $101mm
On May 6, 2014, AOL (NYSE: AOL, market cap $3.5b) announced the acquisition of marketing optimization and attribution company Convertro for $89mm in cash at closing plus $2mm in stock, with an additional $10 mm tied to product development milestones.
Convertro measures ad campaign effectiveness using cross-channel attribution of online and traditional offline media channels. Large advertisers and agencies use Convertro’s platform to determine which marketing channels are delivering the most return on investment and to allocate their spending accordingly.
Convertro accomplishes this by leveraging algorithmic attribution models that meld marketing cost and conversion data with customer marketing exposures captured at a granular level. This regression-based system, combined with additional proprietary technologies developed in-house, enables Convertro to generate spend optimizations for all marketing channels that a client may leverage, whether online (PPC, SEO, display, affiliate and social) or offline (TV, radio and direct mail). For example, this “big data” analysis can generate recommendations such as TV or Facebook advertising can spur purchasing decisions, but with a time delay or that a 6% shift of a brands’ television budget from BBC to A&E will result in a 4% increase in profit.
The company inserts 144,000 marketing events per second into its database and has more than 40mm users every hour. To date, Convertro has recorded billions of dollars in transactional revenue for its customers. According to CEO Jeff Zwelling, Convertro’s engine delivers an average reduction in cost per sales lead between 7 and 12 percent, as well as subsequent boosts in revenue.
Convertro’s customers include Intuit, Comcast, Dish, Zendesk, Go Daddy, LivingSocial, Warby Parker, SurveyMonkey, BigCommerce, The Economist, Wine Enthusiast, LegalZoom and Grubhub, among others. Notable partners include Nielsen, Salesforce, ExactTarget, Facebook, Marin Software and BlueKai.
Founded in 2009 and headquartered in Santa Monica, California with additional offices in New York and Israel, Convertro has raised $10mm in funding from Bessemer Venture Partners (Jeremy Levine), DAG Ventures (Young Chung), MHS Capital and Founder Collective.
AOL is an international ad-supported web company that connects a large advertising network to an audience of 110mm monthly visitors (comScore, February 2014). AOL’s strategy is to provide premium content and advertising inventory through a suite of web brands and products, including Huffington Post, TechCrunch, Games.com, MapQuest, StyleList and Engadget, among others.
AOL has unveiled its plans for a programmatic advertising platform for brands, agencies and publishers called ONE by AOL. The platform, which is currently in development, will integrate several AOL Platforms’ (fka AOL Networks) programmatic technologies, including Adap.tv, which provides buyers and sellers with automated tools to plan, buy, measure and optimize across digital video and linear TV; AdLearn Open Platform, a programmatic mobile and display platform that allows advertisers and agencies to manage and optimize online marketing campaigns from one central platform in real-time; and Marketplace, a programmatic mobile and display platform that delivers online publishers more demand stability and liquidity while maximizing the value of their non-reserved inventory. IPG Mediabrands is the charter agency partner for ONE, which will help with agency activation of data across display, mobile, video and linear TV.
Tim Armstrong, Chairman and CEO, and AOL Platforms CTO Seth Demsey were key executive sponsors of the transaction.
AOL has agreed to acquire Convertro for a closing purchase price of up to $101mm. The aggregate price is comprised of $89mm in cash at closing plus $2mm in converted stock awards and a $10mm earn-out payable over a period of 17 months subject to satisfaction of certain product development milestones.
Transaction Value: $91.0 – $101.0mm
TV/Invested Capital ($10.0mm) 9.1x – 10.1x
Convertro’s sale comes on the same day as Google’s acquisition of competing attribution provider Adometry, for an undisclosed sum. Visual IQ is another independent company providing pure play marketing attribution technology.
Other comparable transactions in the marketing optimization and attribution space include Adobe’s acquisitions of Neolane ($600mm), Efficient Frontier ($374.8mm) and Omniture ($1.8b, 5.2x revenue), IBM’s acquisitions of Unica ($490mm, 4.1x revenue) and Coremetrics ($150mm) and eBay’s acquisition of ClearSaleing.
AOL’s acquisition of Convertro, along with its announcement of the new ONE by AOL platform in Q1 2014 and its Adap.tv acquisition in Q3 2013, demonstrates the company’s focus on two of the fastest-growing sectors of online advertising: programmatic ad buying, which allows advertisers to purchase highly targeted online ad inventory through an automated and computerized trading platform, and video advertising.
AOL is transitioning its business focus from content to ad tech, and Convertro enables the company to support its ad sales through “big data” analytics to show which ad/media impressions have the most impact on consumer behavior.
Architect Partners’ Observations
AOL’s addition of Convertro is one of several moves that position the company to capture a larger portion of ad spending in the future. In fact, eMarketer predicts AOL will see its first double-digit U.S. ad growth since the recession started. AOL’s net U.S. digital display ad revenues will grow 15.5% this year and will maintain double-digit growth in both 2015 and 2016.
As mentioned above, Google acquired Convertro’s competitor Adometry on the same day. This confirms high interest in using big data analytics to support ad buying decisions. It also raises the issue of whether the use of attribution tools by large ad networks will be less than objective in supporting the effectiveness of their own media.
Underscoring our longstanding theme that M&A occurs between parties that have a working business relationship, Convertro had a preexisting partnership with AOL and supplied attribution and optimization data to marketers and agencies using AOL