Verizon’s AOL looking for more adtech plays – sources

Provided exclusively by Mergermarket

Verizon [NYSE:VZ] is actively considering adtech assets to complement its purchase of AOL in June, said two sources familiar with the matter.

Verizon’s purchase of AOL was in large part for its advertising technology, particularly in video, where AOL’s programmatic platform gave the company a large foothold. The now Verizon-owned AOL unit followed up the acquisition by buying Millennial Media in September, another programmatic platform with strong capabilities in mobile.

Since Verizon, which has a USD 187.5bn market cap, can spend relatively few dollars in adtech to acquire bolt-on technologies that can effectively “move the needle” on its efforts, the company has a strong logic pushing its acquisition hunt, a first industry banker said.

Both this banker and a second banker said that since there is a consolidation cycle underway among the relatively few remaining high-quality assets in the adtech space, and since Verizon has effectively unlimited resources to pursue these assets in the USD 100m to USD 500m range, Verizon may feel that it “needs” to make buys now.

The first source familiar cautioned that it is not certain Verizon’s search will result in a transaction, but the business development team is in “high gear” and seems eager to make buys.

That eagerness has been driven by competitive challenges in the broader market, the first banker said, now that Verizon is pushing itself to compete with an exceptionally broad range of large companies, including wireless telcos like AT&T [NYSE:T] and Sprint [NYSE:S], as well as broadband and TV broadcasters like Comcast [NASDAQ:CMCSA].

The second source familiar clarified that as with the Millennial Media purchase, any acquisition will be carried out by the AOL unit specifically. This source said that AOL is taking a close look at an asset that may fetch up to USD 500m at the very top end of its range.

According to the first industry banker, all chatter points to AOL being most keen to purchase an asset primarily focused around video, such as Videology. However, since almost every company in the adtech space would gladly sell if it could, effectively any asset is open to selling to the company. Videology is a platform for video advertising across traditional TV, mobile and desktop.

A third banker said he doubts that Videology is the asset that could be valued at up to USD 500m. “That wouldn’t be anywhere near what they would want,” the third banker said. “They would want much more.” Videology CEO Scott Ferber said in September 2014 that the company was on track for USD 300m of revenue for that year, likely putting it outside of the USD 100m to USD 500m size range.

In an interview with this news service earlier this year, DataXu CEO Mike Baker said that his company had received inbound acquisition interest from telcos. The third banker said DataXu has been pursuing the possibility of an IPO, but because the market is unfavorable right now, a sale might make more sense. DataXu is a provider of programmatic marketing software that aids spending allocation decisions.

This news service also reported that video adtech provider Altitude Digital is seen by industry sources to be a tempting acquisition target.

Verizon did not respond to a request for comment.

by Jonathan Guilford in New York, Mark Andress in San Francisco and David B. Wilkerson in Chicago

As seen in the mergermarket newsletter on 10/11/2015


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