By Britney Cheng, Christina Lee, and Ryan Horlick (University of Michigan), Luca Delpippo, Jinghan Jennifer, Sanjana Ramaswamy, and William Chang (University of St Andrews)
Photo: Joe Yates (Unsplash)
Overview of the deal
Acquirer: Magnite
Target: SpotX
Total Transaction Size: $1.17 billion
Closed date: April 30, 2021
Target advisor: Goldman Sachs
Magnite’s (NASDAQ: MGNI) acquisition of SpotX, an advertising platform previously owned by the European entertainment network RTL Group, will create the largest independent CTV and video advertising platform. The combined cash and stock deal is a result of Magnite’s long-term goal to grow within the connected TV space. The pro forma company will allow clients to grow their businesses across various formats, including CTV, video, display, and audio. As a result of this acquisition, two-thirds of the company’s revenue will come from the fastest-growing market segments. The deal has received broad industry support as it will create a comprehensive advertising product portfolio for both programmers and publishers alike. This acquisition highlights the industry trend as television advertising revenue is shifting from traditional TV into streaming services. The combined capabilities of Magnite and SpotX will allow for a better solution to meet clients’ programming advertising goals.
“Sellers have been calling for a scaled independent alternative to the giant companies that dominate the CTV marketplace, Magnite wants to be that alternative” - Michael Barrett, CEO (Magnite)
Company Details: (Acquirer - Magnite)
Magnite (NASDAQ: MGNI) is a sell-side advertising platform that provides technology for publishers to monetize their content across various screens and formats. The company operates both in the United States and internationally. Its advertising platform also allows agencies and brands to access brand-safe ad inventory and execute advertising transactions.
Founded in 2007, headquartered in Los Angeles, California (USA)
CEO: Michael G. Barrett
Number of employees: 569
Market Cap: $3.161 billion (as of 13/05/2021)
EV: $3.29 billion
LTM Revenue: $246.05 million
LTM EBITDA: $6.97 million
LTM EV/Revenue: 13.39x
LTM EV/EBITDA: 215.72x
Company Details: (Target - SpotX)
SpotX provides software to digital media owners that enables them to monetise their content with video advertising.
Founded in 2007, headquartered in Denver, Colorado (USA)
CEO: Michael Shehan
Number of employees: 400+
Market Cap: N/A (privately held company)
LTM Revenue: $164million
Projections and Assumptions
Short-term consequences
Overall, the short term consequences of the deal seem to be generally positive across industry leaders. The pro forma company’s new position as the leading independent CTV platform will allow them to better serve their clients in this fastest-growing segment of the market, which company executives expect to take meaningful share from linear TV over the next several years. This acquisition is an important step, especially in Magnite’s industry, due to the importance of scale and reaching the largest possible audience when attempting to attract the demand that CTV and video clients are seeking. Some critics say that Magnite overpaid, citing that the purchase price was four times the amount RTL originally paid to acquire SpotX. However, this price increase can be attributed to the popularity of CTV and the necessity to enter the CTV space to meet clients’ demands. Additionally, Magnite was able to pay this large sum partially because of recent price increases in its stock, allowing the company to have more financial leverage to close deals such as this one. Overall, sellers have been calling for a scaled independent alternative to the large companies that currently dominate the CTV marketplace. This acquisition represents a means for Magnite to become that alternative.
Long-term Upsides
Magnite has announced that following the integration of SpotX into the company, that this will immediately form the biggest Connected TV and Video advertising (CTV) platform in the world. Besides an immediate boost to market share, Magnite is still targeting more than $35M in operating cost synergies, with half of these savings expected to be materialised in the first 12 months following the acquisition. Michael Barret, the CEO of Magnite, has said that this acquisition solidifies two-thirds of the company’s revenue coming from CTV, the fastest growing market segment in advertising, with Magnite hoping the acquisition will serve to capitalise on this growth. Thomas Rabe, CEO of the RTL Group, now a significant shareholder in the new company has said he believes the acquisition to have significant upside potential for both parties.
Risks and Uncertainties
Despite outperforming mid-pandemic projections, worldwide digital ad spending in 2020 saw its worst growth on record. In the past three months, Magnite has seen its share value decline up to 57% since February 21st; despite this Magnite has raised its long term revenue guidance from 20% to 25%, hoping to capitalise on the, overall growing, CTV market segment. Since Q2 2020 however, the company has only seen a 17.3% increase in revenue. In a highly competitive market, Magnite will have to continue acquisitions and meet revenue targets to remain a key industry player. It is important to note that whilst uncertain, digital ad spending is forecast to grow, with SpotX being acquired at 10x trailing sales, compared to Magnite’s 22x, the acquisition appears a sensible move for the company.
“Acquiring SpotX positions us to become the world’s largest, independent source of highly-coveted CTV and video inventory.” - Michael Barrett, CEO (Magnite)