Yahoo makes its video ad play

Contact: Scott Denne

Yahoo reaches for one of the last remaining video exchanges of any scale with the $640m purchase of BrightRoll. The deal tops a wave of M&A targeting companies that serve the publisher side of the video advertising business.

The transaction benefits Yahoo in a couple of ways. BrightRoll is the largest independent video ad network; bundling it with the video inventory on Yahoo’s owned and operated sites will add scale to that inventory and make it more valuable.

While we believe most of BrightRoll’s revenue comes from its original ad network business, it has a growing video exchange unit that could make a powerful extension to the burgeoning mobile video ad network of Flurry, another recent Yahoo acquisition. BrightRoll also has a nascent programmatic demand-side business. That piece of the target aligns well with Yahoo’s efforts to develop more tools for advertisers, such as its recently launched Yahoo Gemini and its pickup of AdMovate last year.

In terms of trailing net revenue, Yahoo is paying about 6x, on the low end of the 5-10x range we’ve seen in recent purchases of video ad exchanges and publisher tools. While BrightRoll is a scarce asset these days (we covered past video ad M&A and the dearth of targets in a recent report), Yahoo is a rare buyer – not many companies have the strategic need for a video ad platform as well as the capital to take out BrightRoll. That’s not to say this isn’t a good deal for BrightRoll. Without Yahoo, the company would have likely turned to the public markets, where video ad networks Tremor Video and YuMe command 2-3x trailing net revenue.

Morgan Stanley, which advised BrightRoll rival on its sale to AOL last year, also banked BrightRoll on today’s transaction.

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