M&A Alert—November 11, 2014
Yahoo Acquires Programmatic Video Advertising Company BrightRoll for $640mm
Author: Steve Payne, David Wei Liu
Transaction Size: $640mm
On November 11, 2014, Yahoo (NASDAQ: YHOO; market cap: $46.5b) announced a definitive agreement to acquire BrightRoll, the leading independent video advertising platform, for $640mm in cash.
BrightRoll provides a computer-driven ad delivery platform that helps buyers (advertisers) and sellers (web and mobile publishers) connect video advertising with consumers across the web, mobile and connected TV.
BrightRoll powers programmatic video advertising for 87 of the Top 100 US advertisers, and 18 of the Top 20 US ad tech companies, mainly online, but with growing mobile web and app coverage. In addition, 25 of the top 50 online and mobile publishers use BrightRoll’s platform to connect with advertisers. As a result, BrightRoll surpassed Google in 2012 in terms of viewers reached, and remains number one ever since. It is now delivering video ads to 52.4% of the US population, ahead of Facebook/LiveRail, AOL/Adap.tv and Google Sites.
Headquartered in San Francisco, BrightRoll was founded in 2006 by Tod Sacerdoti. The company now has 370 employees across offices in North America and Europe. Since establishment, BrightRoll has raised $36mm in funding from investors such as Adams Street Partners (Adams Welsh), True Ventures, Scale Venture Partners, Comerica Bank, Trident Capital (Evangelos Simoudis), and KPG Ventures. The company has been profitable since 2010, and is expected to double its 2013 net revenues and exceed $100mm in 2014.
Yahoo is a leading portal that offers Internet search capabilities, digital advertising, and a wide range of online tools and content including Yahoo News, Sports, Finance, Entertainment, Mail, Messenger, Groups, Answers, Flickr and social blogging platform Tumblr (which the company acquired in May 2013 for $1.1 billion).
Yahoo’s Gemini advertising solution helps advertisers build and deliver targeted ads, and also provides a set of tools to track performances and provide insights. The Yahoo US sites have 38mm daily visitors, fifth highest, and the company is working to build its mobile presence.
Yahoo was founded in 1994 and is headquartered in Sunnyvale, California, with offices all around the world.
Yahoo is acquiring BrightRoll for $640mm in cash.
The most comparable transaction is Facebook’s acquisition of LiveRail on July 2, 2014. Others include include RTL Group’s majority stake acquisition of SpotXchange, AOL’s acquisition of Adap.TV, Blinkx’s acquisition of Rhythm New Media, and Comcast’s acquisition of FreeWheel. Key parameters for these transactions are listed below:
Buyer / Target Implied Equity Value (mm) EV/2014 Revenue EV/Invested Capital
Yahoo / BrightRoll $640 6.4x 16x
Facebook / LiveRail $400 – 500 4.0x – 5.0x 33.3x – 41.7x
RTL / SpotXchange $222 4.4x – 5.6x 18.5x
AOL / Adap.TV $405 4.8x 8.4x
Blinkx / Rhythm New Media $65 4.9x 2.2x
Comcast / FreeWheel $320 9.1x 8.6x
Yahoo had only controlled a few percent of the fast-growing video advertising market, and this acquisition will make Yahoo’s video advertising platform the largest in the U.S. in terms of ads served.
Architect Partners’ Observations
Yahoo is paying a slightly higher premium, 6.4x revenue, than recent comparable transactions, but within the range of expectations.
For BrightRoll, this acquisition is an attractive alternative to IPO, given the disappointing IPO performances of video ad companies Tremor Video and YuMe, both of whom were priced below expectation and still had declining stock prices post-IPO.
The acquisition of BrightRoll brings Yahoo’s total acquisition expenditures to $1.6b since July 2012, when Marissa Mayer was named CEO. This transaction is their second largest, after Tumblr. We expect to see more Yahoo M&A activity around both content and advertising, especially given the company’s large cash reserves post-Alibaba IPO.