M&A Alert—June 24, 2014
Opera Acquires Mobile Video Ad Platform AdColony for Up to $350M
Author: Eric F. Risley
Transaction Size: $75mm - $350mm
On June 24, 2014, Opera (OB: OPERA; market cap: $1.7b) announced the acquisition of mobile video ad platform AdColony for $75mm in cash upfront, plus additional performance-based earn-out payments of up to $275mm.
AdColony, a mobile video advertising company, features proprietary Instant-Play technology that delivers full-screen HD video ads instantly across an extensive network of iOS and Android applications. The video ads are shown in-app as part of the native experience, and are available pre, mid or post video roll.
The company distinguishes its solution by enabling low latency ad serving technology that can deliver HD video ads instantly, eliminating key pain points in mobile video advertising – such as long load times and grainy, choppy video that can limit the user experience. AdColony also features unique ad inventory, called Dynamic End Cards, which are displayed at the end of videos and incorporate a clear call-to-action, such as click to buy, locate store, follow on Facebook/Twitter or view product features.
AdColony works directly with app publishers who monetize via mobile video ads. This includes leading digital media properties and more than half of the top grossing publishers in the App Store. For example, apps like Flixster, Viggle, ABC News, Despicable Me: Minion Rush and Slacker Radio partner with AdColony to monetize their in-app video inventory. On the advertiser side, AdColony works directly with brands and agencies to provide a network of premium in-app inventory. AdColony advises these brands and agencies on their mobile video strategy and works with media buyers to help them ideate, create and run impactful campaigns across its ad network.
Launched in 2011 and based in Los Angeles, CA with additional offices in San Francisco, Seattle and New York, AdColony has raised an undisclosed amount of funding from Insight Venture Partners (Bryan Gartner, Ryan Hinkle). Competitors include YuMe, Brightroll, Tremor Video, Flurry, Rhythm New Media, InMobi and Vungle.
AdColony will continue to support its existing customers following the acquisition. Will Kassoy, AdColony’s CEO, will become Chief Marketing Officer of Opera Mediaworks while also maintaining his current role as CEO of AdColony.
Opera, which was founded in 1994 and is based in Oslo, Norway, currently has over 350mm people using its web browsers for computers, mobile phones, TVs and other connected devices. Opera Software ASA is listed on the Oslo Stock Exchange under the ticker symbol OPERA.
Opera’s mobile advertising subsidiary, Opera Mediaworks, enables publishers to monetize their content and allows brands to reach a global audience of more than 500mm consumers. Opera Mediaworks features a stack of technologies for advertisers and publishers, including the Opera Mediaworks Ad Exchange (OMAX), creative tools, reporting and analytics, measurement, programmatic buying, video and rich-media offerings.
Opera CEO Lars Boilesen and Opera Mediaworks CEO Mahi de Silva were key executive sponsors of the transaction.
Opera is acquiring AdColony for $75mm in cash, plus potential earn-out payments of up to $275mm tied to AdColony’s 2014, 2015 and 2016 revenue and adjusted EBITDA targets. Opera’s CFO Erik Harrell stated the acquisition is expected to be immediately accretive. As a result of the transaction, Opera is also raising their 2014 and 2015 revenue and adjusted EBITDA guidance. AdColony earned $53mm in 2013 revenue and was profitable.
Transaction Value: $75mm – $350mm
TV/2013 Revenue Multiple ($53mm) 1.4x – 6.6x
TV/2013 Adjusted EBITDA ($8mm) 9.5x – 44.3x
Comparable mobile video advertising M&A transactions include Blinkx’s acquisition of Rhythm New Media for $65mm (4.9x LTM revenue), YuMe’s acquisition of Appealing Media and MediaMath’s acquisition of Tap.Me.
AdColony will slot directly into Opera’s mobile advertising subsidiary, Opera Mediaworks. Although Opera had existing rich media and mobile video capabilities, bringing a leading mobile video ad specialization platform in-house will solidify its position as a comprehensive mobile advertising solutions provider for publishers and advertisers. The acquisition also extends Opera’s reach to over 700mm global consumers.
Architect Partners’ Observations
Mobile video advertising is the fastest growing ad segment in the digital advertising market. According to Gartner, mobile advertising is expected to grow from $18b in 2014 to $42b in 2017, with mobile video advertising driving the highest growth.
Opera is making a careful bet on AdColony given the way in which the transaction is structured. Opera is paying $75mm in cash as upfront consideration, which represents 1.4 times AdColony’s 2013 revenue. This deal can have a lot of upside for AdColony management and investors if the company continues its strong momentum and reaches its performance forecast numbers.