Yahoo Paid Zero Cash for Its 25% Stake in Taboola

Yahoo is not paying cash to own the approximate 25% stake in content recommendation ad-tech firm Taboola, according to sources familiar with the situation, marking a sign of the times as the economy braces for a long winter. Taboola, which is publicly traded, will issue new shares as part of the deal giving Yahoo an equity stake, one of the sources said. At midday Thursday, Taboola shares were trading at $2.82, down from a 52-week high of $8.16 in December 2021. The provision is another example of the highly unusual nature of the deal, which was announced on Monday. In conjunction with the equity exchange, Yahoo agreed to let Taboola exclusively power its native advertising business across its media properties for 30 years, a particularly long term in the fast-moving world of digital media. Sources told Adweek that the deal provides a playbook for recessionary times, when acquisitive companies are holding onto more cash and sellers don’t want to accept a depressed valuation. “The key, rare part is there was no money exchanging,” said Stephen Master, an ad-tech investor and principal at private equity firm GTCR. “If you’re going to own 25%, you’re [usually] going to pay for it.” ‘Creative Dealmaking’: What Yahoo’s Stake in Taboola Says About Ad Tech’s Next Phase of M&A The deal is a no-brainer for Apollo-owned Yahoo, Master said, which can access cost-savings by outsourcing its native advertising business to Taboola that Yahoo has historically run in-house. Apollo and Yahoo “get a profitable core business with no downside for them,” Master said. Taboola declined to comment. Yahoo and Apollo have not responded to a request for comment. Taboola will exclusively monetize Yahoo—one of the largest digital publishers with 900 million monthly active users. It also expects to significantly improve its balance sheet. Taboola is trying to win over investors by explaining Yahoo had been on its network for all of 2022, revenue would be $2.4 billion and adjusted EBITDA would be $297 million, 76% and 90% higher, respectively, than current guidance. Taboola is betting that this rosier financial outlook, plus a higher stock price—shares are up 53% since the deal was announced Monday—will make the partnership valuable to investors. Taboola went public in a SPAC deal in June 2021. Still, Taboola is taking on more downside risk by foregoing a cash payment and increasing the number of outstanding shares, meaning each investor has a smaller stake, Master said. According to the investor presentation, Yahoo will get 15% of the total voting shares as well as one seat on the current eight-member board of directors. "[Taboola is] taking a calculated risk," Master noted. “The market said it’s a good risk."