Tag: AdMob

Millennial Media doubles on debut

Ben Kolada

Contact: Ben Kolada

Taking advantage of the emerging market for mobile advertising, platform vendor Millennial Media leapt onto the public stage Thursday, creating nearly $2bn in market value in its debut on the New York Stock Exchange. The company priced its 10.2 million shares at $13 each – the high end of its proposed range. Shares traded at about twice that level in early afternoon. Millennial Media is trading under the symbol MM. Morgan Stanley, Goldman Sachs and Barclays led the offering, while Allen & Company and Stifel Nicolaus Weisel served as co-managers.

Millennial Media, which has nearly 75 million shares outstanding, currently garners a market cap of $1.9bn. That values the company at 18 times trailing sales, in the ballpark of where we estimate Quattro Wireless was valued in its sale to Apple, but about half the valuation we believe AdMob received from Google. Those two companies are Millennial’s primary rivals, although Millennial stakes its claim as the largest independent mobile ad platform provider.

Interest in advertising technology has been building throughout both the equity and M&A markets. Earlier this month, for instance, telco SingTel announced that it was acquiring Amobee for $321m. (We estimate the startup, which provides mobile ad campaign management software, garnered roughly 9x trailing sales in its purchase by the Singapore telco giant.) Meanwhile, the Adtech pipeline is far from dry, even after a recent slew of big-ticket exits. Earlier this month, advertising intelligence firm Exponential Interactive filed its paperwork to go public. The company, which plans to trade under the symbol EXPN, increased revenue 35% last year to $169m.

Selling to Facebook

Ben Kolada

Contact: Ben Kolada

Rather than buy into Facebook after it debuts on the open market, many companies may consider selling to the social networking giant after its IPO. Facebook is already rich with cash, and is about to become much richer. Meanwhile, its M&A strategy has so far focused on acquiring smaller startups for their IP and engineering talent, but the company has said it may do bigger deals in the future.

According to The 451 M&A KnowledgeBase, Facebook has so far bought 25 companies, mostly for their specialized employees such as software engineers and product designers, but also for complementary technology. The company has been fairly cash conscious in its transactions, preferring to motivate acquired personnel with stock options rather than upfront cash payouts – in fact, Facebook spent just $24m in cash, net of cash acquired, on the deals it closed in 2011.

While innovative startups with skilled personnel, particularly those in the collaboration and social networking sectors, should still consider selling to Facebook a viable exit, midmarket and larger technology firms should also consider Facebook a potential suitor. In both public reports and in its IPO prospectus, the company has said it could put its treasury to work on larger deals. And it will certainly have the fire power – adding proceeds from its $5bn public offering to its treasury would bring its total spending power to nearly $9bn (including cash and marketable securities).

Facebook could apply some of its rationale for buying smaller vendors to larger acquisitions. For complementary technology, it could target a larger mobile advertising network (it picked up development-stage rel8tion in January 2011). The lack of a mobile ad platform is a gaping hole in Facebook’s portfolio, especially considering it had 425 million mobile monthly active users at the end of 2011. A company similar to AdMob (which sold to Google) or Quattro Wireless (acquired by Apple) such as Millennial Media or Jumptap would go some way toward filling that gap. For regional expansion and consolidation, Facebook could make a move for any of a number of international competitors, including Cyworld in Korea, Mixi in Japan, Vkontakte in Russia or Renren in China. As the trend toward consumerization in the enterprise continues in the form of social networking and collaboration (salesforce.com’s Chatter or Oracle’s Social Network come to mind), Facebook could look at an enterprise offering as well. The leading candidate in this sector would be Jive Software, one of the most prized properties in the social enterprise space with a market valuation of about $1bn.

Tech M&A strikes back

Contact: Jarrett Streebin

As we pointed out in a recent webinar, 2010 is shaping up to be a great year for tech M&A. With year-to-date acquisition activity already surpassing last year’s total value and number of deals, it appears as though most companies were just sitting out the storm until it was time to start buying again.

The same trend in M&A can be seen in our annual AlwaysOn study. Each year before the AlwaysOn Summit at Stanford, we do a breakdown on companies that have been selected to the AO Global 250. This year’s uptick was even more pronounced for firms selected by AlwaysOn. The median revenue multiple for AO companies was 5.2, compared with only 1.5 for tech M&A as a whole. This was based on the incredibly high volume of AO companies bought. From August 2009 to early July, there were 37 exits by AO companies, more than in any other 12-month period before. There was also the second-most total spending, with more than $5.6bn spent.

Some of the more notable exits were AdMob by Google, Greenplum by EMC and Cast Iron Systems by IBM. Google, EMC and IBM were some of the most acquisitive players this year, with each buying three AO companies. They cast their votes in the most meaningful way – by reaching for their wallets.

Nokia hiring by acquiring

Ben Kolada

In an unusual bit of dealmaking, Nokia bought geo-tagging vendor MetaCarta in April and then turned around and sold it three months later. The recent divestiture might appear to be a botched acquisition. However, as we look closer at the deal, it turns out that Nokia actually got what it wanted out of the purchase. It is retaining MetaCarta’s engineering team while shedding its enterprise accounts to Qbase. (Nokia didn’t really have any use for the startup’s enterprise business, which was largely oil and gas industry as well as government installations.)

Cambridge, Massachusetts-based MetaCarta employed approximately 20 development engineers, plus 15 enterprise sales and support staff. Although terms of the deal weren’t disclosed, we understand that Nokia paid about $30m for MetaCarta. If we look at the price in terms of what assets Nokia actually wanted to obtain, we pencil it out at about $1.5m per engineer. This is obviously an expensive way to recruit personnel, and underscores the increasing pressure that Nokia is seeing in the mobile-mapping space.

Nokia ‘hired’ MetaCarta’s engineers to reinforce the search feature in Ovi Maps, Nokia’s most popular application. MetaCarta is a specialist in geo-tagging unstructured text such as websites and emails. While mapping competitor Google does the same, MetaCarta’s information will be layered on NAVTEQ’s mapping data, which is arguably more detailed than Google’s maps.

The transaction is another in the long line of acquisitions that Nokia has made in its move toward mobile advertising. However, Nokia’s rivals have also been active in the mobile M&A space. Research In Motion reached for GPS vendor Dash Navigation in June 2009. In November 2009, Google outbid Apple and bought AdMob for $750m. In response, two months later, Apple picked up Quattro Wireless for an estimated $275m. Nokia hasn’t made a purchase of this magnitude, but we still believe it could be on the hunt for additional mobile providers. The company could build on its MetaCarta acquisition by buying location-based advertising vendor 1020 Placecast. The San Francisco-based firm is a major strategic partner of Nokia’s NAVTEQ, and would supplement MetaCarta’s geo-tagging capabilities.

No recession for mobile advertising M&A

-Contact Thomas Rasmussen

Following Google’s purchase of AdMob in November, we predicted a resurgence in mobile advertising M&A. That’s just what has happened and, we believe, the consolidation is far from having run its course. Apple, which we understand was also vying for AdMob, acquired Quattro Wireless for an estimated $275m at the beginning of the year. At approximately $15m in estimated net revenue, the deal was about as pricey as Google’s shopping trip for its own mobile advertising startup. And just last week, Norwegian company Opera Software stepped into the market as well, acquiring AdMarvel for $8m plus a $15m earnout. We understand that San Mateo, California-based AdMarvel, which is running at an estimated $3m in annual net sales, had been looking to raise money when potential investor Opera suggested an outright acquisition instead.

These transactions underscore the fact that mobile advertising will play a decisive role in shaping the mobile communications business in the coming years. For instance, vendors can now use advertising to offset the costs of providing services (most notably, turn-by-turn directions) that were formerly covered by subscription fees. Just last week, Nokia matched Google’s move from last year by offering free turn-by-turn directions on all of its smartphones. Navigation is only the beginning for ad-based services as mobile devices get more powerful and smarter through localization and personal preferences.

While traditional startups such as Amobee will continue to see interest from players wanting a presence in the space, we believe the next company that could enjoy a high-value exit like AdMob or Quattro will come from the ranks that offer unique location-based mobile advertising such as 1020 Placecast. The San Francisco-based firm, which has raised an estimated $9m in two rounds, is a strategic partner of Nokia’s NavTeq. As such, we would not be surprised to see Nokia follow the lead of its neighbor Opera by reaching across the Atlantic to secure 1020 Placecast for itself.

Is mobile advertising back?

-Contact Thomas Rasmussen

In a clear sign that mobile advertising has grown up, Google spent a whopping $750m in stock on Monday to pick up San Mateo, California-based AdMob in what we hear was a contested process. This transaction goes a long way toward securing control of mobile display advertising for Google and comes just days after the launch of Android 2.0. Although we’ve been projecting dealmaking in the mobile advertising market for quite some time, we’re nonetheless floored by the rich valuation for AdMob, a three-year-old startup that’s raised just shy of $50m. We estimate that the 140-person firm pulled in about $20m in gross revenue in 2008 and was on track to double that figure this year (we surmise that this translates to roughly $20m on a net revenue basis).

The double-digit valuation for AdMob reminds us more than a little bit of the high-multiple online advertising deals that we saw in 2007. Viewed in that context, Google’s purchase of AdMob stands as the third-largest ‘new media’ advertising purchase since 2002. Of course, like many of those transactions, this was not based on revenue, but instead on technology and market extension, which is consistent with Google’s strategy of acquiring big into core adjacencies.

Looking forward, AdMob’s top-dollar exit is sure to have a number of rival mobile advertising startups excited. One competitor that’s preparing to raise an additional sizable round of funding quipped at the near-perfect timing of this transaction. This is an industry that has seen its ups and downs over the past few years. When we first wrote about AdMob back in May it was in the backdrop of fire sales and failed rounds of funding. If nothing else, this deal will dramatically change that.

Microsoft has been actively playing catch-up to Google in advertising and search, and is sure to follow it onto the mobile device. As are many other niche advertising shoppers such as Yahoo, Nokia, AdKnowledge, Adobe-Omniture and traditional media conglomerates such as Cox. AOL has already made its move, reaching for Third Screen Media two years ago. (We would note that AOL’s $105m purchase of Third Screen is a rare case of that company actually being ahead of the market.)

Startups that could benefit from this increasing focus on the sector include AdMarvel, Amobee, InMobi, and Velti’s Ad Infuse. However, we suspect that some of the major advances – and consequently the most promising targets – are likely to come from players that are just now getting started, with fresh and profitable approaches to location-based mobile advertising.

Some recent mobile advertising deals

Date announced Acquirer Target Deal value Target TTM revenue
November 9, 2009 Google AdMob $750m $20m*
September 14, 2009 Nokia Acuity Mobile Not disclosed Not disclosed
August 27, 2009 AdMob AdWhirl Not disclosed Not disclosed
May 21, 2009 Limelight Networks Kiptronic $1m $2m*
May 12, 2009 Velti Ad Infuse <$1m* $1.3m*
March 11, 2008 Qualcomm Xiam Technologies $32m Not disclosed
August 21, 2007 Yahoo Actionality Not disclosed Not disclosed
May 15, 2007 AOL Third Screen Media $105m $3m*

Source: The 451 M&A KnowledgeBase *451 Group estimate

Reality check for mobile ad networks?

-Contact Thomas Rasmussen

Mobile advertising startup Ad Infuse received an infusion of reality last week. The vendor, which has raised $18m in venture backing, had to put itself up for sale after it was unable to secure follow-on funding this year. After being shopped around since last summer, Ad Infuse sold for scraps to UK-based mobile advertiser Velti. We estimate that Velti paid less than $1m for Ad Infuse, which we understand generated just $1.3m in revenue in 2008.

The distressed sale of Ad Infuse comes on the heels of SmartReply’s tiny all-equity purchase of mSnap, as well as several deals involving other niche advertising networks this year. Where does this leave the remaining mobile ad networks that we were bullish on last year as the logical next step of growth for online ad startups?

We suspect there is more VC portfolio cleanout coming, since there are still too many mobile ad startups. That’s not to say there aren’t a few firms that haven’t had some success. For instance, three-year-old mobile ad network AdMob, which has successfully ridden the coattails of Apple’s iPhone AppStore’s rise by providing a way for iPhone developers to monetize their users through ads, is currently at an estimated $30m run-rate. (AdMob has raised nearly $50m to date from Sequoia Capital, Accel Partners, Draper Fisher Jurvetson and Northgate Capital.) And on a smaller scale, AdMarvel is just getting started with what we can best describe as a mobile version of the popular video ad startup Adap.tv. It has raised just $8m to date and is in the process of closing a $10m follow-on round, something its competitor Ad Infuse was unable to accomplish.

Much like what we anticipate will eventually happen in the online video ad space, there will soon come a time when ad giants such as Google and Yahoo will have to buy their way into the mobile sector. In a rare sign of foresight, AOL is the only media behemoth with a sizable presence in the mobile ad vertical following its $105m acquisition of Third Screen Media in 2007.

Ad networks: What recession?

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-by Thomas Rasmussen

Akamai just got serious about online ads. It acquired ad network acerno from i-Behavior last week for $95m in cash. (See my colleague Jim Davis’ report for more on this acquisition.) This marks not just a somewhat drastic change in focus for Akamai, but is also an encouraging sign for the remaining online advertising networks. Despite the current economic meltdown, and more specifically the declining revenue and abysmal forecasts from ad giants Yahoo and Google, everybody seems to want a slice of the multibillion-dollar online advertising market.

Including the Akamai transaction, a total of 23 online advertising deals have been inked this year. That is up more than 25% from 17 deals for all of 2007, and just four in 2006. This increase in M&A activity stands in stark contrast to the overall Internet M&A picture, where the number of deals has declined more than 10%.

Moreover, despite highly publicized warnings from VCs about the decline in available venture capital and possible exits, funding has been flowing freely and rapidly to online advertising startups. Some of the many to receive funding recently include mobile ad firm AdMob, which raised $15.7m last week for a total of $35m raised to date; Turn Inc., which raised $15m recently for a total of $37m; ContextWeb, which raised $26m in July for a total of more than $50m raised; social networking ad network Lotame, which raised $13m in August in a series B round for a total of $23m raised; and Adconion Media Group, which closed a staggering $80m in a series C round in February, bringing its total funding to more than $100m.

With IPO markets closed, these startups should all be considered M&A targets. Adconion in particular stands out because of its international reach and large base of 250 million users, 50 million of whom are in the US. It would be a nice fit for one of the large media conglomerates competing for online advertising dominance. And they have shown that they are not afraid of opening the vault to do so. VC and banker sources say funding is likely to continue for the near term since there is still a lot of buyer interest. It is unlikely to suffer the same fate as the social networking funding fad, because some online advertising companies actually make money. As this segment continues to consolidate over the next year, we suspect deal flow will likely eclipse that of the past 12 months. Mobile and video advertising ventures are likely to lead the next generation of online advertising-focused startups.

Select recent online advertising deals

Announced Acquirer Target Deal value Deal closed
October 15, 2008 Technorati AdEngage Not disclosed October 15, 2008
June 18, 2008 Microsoft Navic Networks $250m (reported) Not disclosed
April 29, 2008 Cox Enterprises Adify $300m May 2008
March 11, 2008 Qualcomm Xiam Technologies $32m March 11, 2008
February 5, 2008 AOL Perfiliate Technologies $125m February 5, 2008
November 7, 2007 AOL Quigo Technologies $346m December 20, 2007
September 4, 2007 Yahoo BlueLithium $300m October 15, 2007
May 18, 2007 Microsoft aQuantive $6.37bn August 13, 2007
May 15, 2007 AOL Third Screen Media $105m May 15, 2007
April 13, 2007 Google DoubleClick $3.1bn March 11, 2008
April 30, 2007 Yahoo Right Media $680m July 12, 2007

Source: The 451 M&A KnowledgeBase