Magnite Will Buy SpotX for $1.17 Billion to Create Dominant Independent CTV Platform

In a move to create a dominant connected TV platform, supply-side platform Magnite announced that it will acquire SSP SpotX for $1.17 billion in cash and stock. Less than a year after closing on its deal for Telaria, another CTV-first platform, Magnite is moving to position itself as a formidable, independent alternative in the fast-growing streaming monetization space to the likes of Google, Amazon, Comcast and AT&T—all of which own content and operate ad-tech stacks in CTV. Michael Barrett, CEO of Magnite, said the company’s CTV business will triple upon completion of the SpotX acquisition, thanks in part to SpotX's strong relationships with device manufacturers, like smart TV makers, and technologies around livestreaming. “[The acquisition] pretty much reshapes the company as a video-first SSP,” Barrett said. He noted that two-thirds of Magnite’s business will be in video, with one-third of its overall business being in CTV specifically, upon completion of the deal. The CTV ad market is growing quickly as more people ditch their cable subscriptions and instead stream content on their TVs, a trend that’s accelerated during the pandemic as more people stay at home. U.S. ad spend in the space is expected to total $11.36 billion by year’s end and $18.29 billion by 2024, according to research firm eMarketer. With this surge in audience growth comes fragmentation of content consumption, so the acquisition aims to make it easier for both media buyers and sellers to trade CTV inventory at scale by consolidating supply. Mike Shehan, co-founder and CEO at SpotX, said the sale process was "very competitive" and that the combination of the two companies will mean there will be sufficient investment and scale to create a "true independent alternative" for media buyers and sellers. "You need resources, you need scale, to ultimately compete with those bigger guys—the Googles, the Comcasts, the Amazons—who are going after that market," Shehan said. "My absolute intention is to lock arms with Magnite in battle against the giants here and go win this market." RTL Group, the European broadcaster that previously owned SpotX, had been strategically reviewing its SpotX business since August 2019. By offloading the company, the broadcaster will focus on growing its European businesses, including streaming and addressable advertising. The right time to sell Goldman Sachs and Luma Partners acted as financial advisors to Magnite on the deal. Terry Kawaja, CEO of Luma Partners, said “market valuations have materially improved” since RTL Group began its review of SpotX, given the hastened rise of streaming since the onset of the pandemic. Magnite, which is based in Los Angeles and trades publicly on the Nasdaq, has a market capitalization of $5.7 billion. It opened the day at $55.83 dollars a share, 12 points higher than previous close. With supply from both SpotX and Telaria under one roof, Magnite “now becomes the undisputed leader in CTV advertising,” according to analysis from investment banking firm Craig-Hallum Capital Group. “While we believe competitors like FreeWheel and Google will continue to play a role in connected TV, their competition for production and viewers will undoubtedly impact their ability to consolidate market participants," according to a note from Craig-Hallum Capital Group. "We believe the formation of this independent leader will allow Magnite to truly work on publishers’ behalf to continue to create technology to accelerate the move to connected TV." Thomas Rabe, CEO of RTL Group, said in a statement that ad tech remains a strategic priority for the company. He mentioned RTL Group has made “significant progress” in building a European ad-tech platform and tapping into Europe’s addressable TV market through its ad-tech companies Smartclip and Yospace. “To successfully transform our business, two factors are particularly important," Rabe said. "One is higher reach, in both linear and non-linear TV. The second is better monetization of our reach, through targeting and personalization—and this requires state-of-the-art advertising technology and data management." What's next? The acquisition of SpotX is expected to close in the second quarter of 2021. While the ultimate goal is to combine Magnite and SpotX’s platform into one, the two businesses will remain separate and operate independently for the time being. SpotX, based outside of Denver in Broomfield, Colo., has roughly 445 employees across its 10 global offices. Magnite, with its roughly 550 employees, is targeting $35 million in cost synergies, or savings, as part of the transaction. Barrett said some of those savings can come from areas like vendor negotiations and real estate, but “regrettably, there's always a people piece of it, too, but the vast majority of folks are here for the ride.” Magnite laid off 8% of staff following the deal for Telaria, a larger reduction than initially expected due to the pandemic. Following the deal for Telaria, Magnite had $143 million cash-on-hand with no debt. At the time, Barrett said the company was “poised to be a net acquirer.” Now, Barrett said Magnite’s cash balance is around $100 million. When asked if the company will look to make further acquisitions, the CEO said Magnite is always opportunistic, but he’s currently focused on ensuring a successful integration. “Our swim lane ... is as an agent of the publisher, helping the publisher. So, I think that somewhat limits us as to what we want to do in the ecosystem," Barrett said. SpotX took a 20% investment in ad serving company Springserve last July. Barrett said Magnite will figure out what to do with Springserve after the deal closes, but he’s “always admired” the Springserve team and thought SpotX’s investment into the company was smart. While Magnite has consolidated CTV supply, there are still many other opportunities to acquire companies with offerings that support the growth of the sector, including areas like workflow, data and analytics, according to Kawaja. “When the sector goes through such a cataclysmic inflection, like CTV has in the last year, the beneficiaries of that are wide-ranging,” he said.