M&A Alert—September 3, 2015
Aol agrees to acquire mobile advertising company Millennial Media for $238 million.
Author: Eric Risley, John Ascher-Roberts
Transaction Size: $238mm
On September 3, 2015, Verizon’s AOL announced an agreement to acquire the Baltimore-based Millennial Media (NYSE:MM) for $238 million.
Simply put Millennial Media is a mobile advertising inventory exchange, matching advertisers with mobile ad inventory using a variety of targeting techniques and technologies. As recently as 2012, Millennial Media had a leadership position within this market, second to Google in terms of its U.S. mobile ad revenue market share. However, the ascendance of Google, Facebook, Twitter and others has materially eroded their competitive position. Today, according to eMarketer, Millennial Media has a 0.4% market share of the US mobile ad market, down from the 16.7% high in 2012.
As of June 2015, Millennial Media’s platform reached approximately 700 million monthly unique users worldwide, including approximately 190 million unique users in the United States. More than 65,000 apps are enabled by their developers to receive ads delivered through Millennial’s platform.
AOL, recently acquired by Verizon for $4.4 billion, owns premium content such as Huffington Post, TechCrunch, Engadget, and AOL.com that it monetizes through advertising and subscriptions. AOL’s fastest-growing business, now comprising almost 40% of revenues, is selling digital advertising on third-party properties. Video content and advertising has become a focus for AOL for the past few years, supported by its acquisitions of video syndicator 5Min in 2010 ($65mm), and video ad platform Adap.tv in 2013 ($405mm). In early 2015 AOL introduced its new cross-channel (TV/web/mobile) programmatic ad platform called ONE.
AOL’s media properties, which get more than 200 million unique visitors a month, make AOL the fourth largest Internet conglomerate behind Google, Yahoo! and Facebook, and the third largest site for viewing video across desktop and mobile. On the advertising side, AOL owns about one percent of the $145b digital advertising market, far behind leaders Google and Facebook.
AOL was founded in 1985 and is headquartered in New York. It has around 5,600 employees.
AOL is purchasing Millennial Media for $1.75 per share, which represents a 31% premium over its previous day’s closing price of $1.34 per share. This is an enterprise value of $238 million.
|EV / LTM Rev:||0.8x|
|Stock Price Premium||31%|
Comparable transactions include Yahoo’s acquisition of Flurry in July of 2014 for $200-300M (2.7-4.1x rev), Opera Software’s acquisition of AdColony in June of 2014 for $350M (6.6x rev), and Twitter’s acquisition of MoPub in September of 2013 for $350M (3.5x rev, 18.9x invested capital). Millennial Media had bought real-time ad bidding vendor Nexage in September of 2014 for $107.5M (2.3x rev, 4.5x invested capital), covered in our M&A Alert.
AOL’s acquisition of Millennial Media is intended to augment its existing mobile advertising capabilities, which are particularly relevant given their ownership by mobile service provider, Verizon.
Architect Partners’ Observations
Oh how the mighty have fallen. We see this transaction as capitulation on the part of Millennial Media, signifying how quickly the mobile ad market shifted to competitors with large audiences, broad ad inventory access and full featured and capable ad technology platforms. The valuation of 0.8x trailing twelve months revenues says it all.
The advertising and marketing technology sector remains a very attractive area of growth with mobile leading with an expected growth of 430% from 2013-16, and will comprise 51% of the entire digital ad market according to eMarketer. However, the competitive environment has intensified and much of this growth is being captured by the larger leaders as mentioned earlier. Emerging, young companies need to be able to demonstrate, ideally at scale, a unique value proposition to achieve the premium M&A valuations we’ve experienced in the past.