Looks like CEO Marissa Mayer doesn’t think much of activist investor Starboard Value’s recommendation that she cut back on her dealmaking. Today’s $640 million acquisition of BrightRoll, a major seller of online ads, is one of Mayer’s biggest purchases after last year’s $1 billion deal for Tumblr. Yahoo says that BrightRoll’s revenues should exceed $100 million this year and will “dramatically strengthen Yahoo’s video advertising platform, making it the largest in the U.S.”
Video is “one of the largest growth opportunities, and BrightRoll is a terrific, strategic and financially compelling fit for video advertising business,” Mayer says. The combination “builds positive momentum for Yahoo’s broader display advertising business in 2015.”
BrightRoll specializes in programmatic ads, which uses computers to match ad buyers and sellers. That might be helpful to Yahoo as it looks for sponsors for its expanding array of online videos. “We believe the next step for programmatic video advertising as an industry is to extend and standardize globally, make cross-device buying simple and measurable and complement and integrate with TV,” says BrightRoll founder and CEO Tod Sacerdoti. Yahoo says that when the deal closes, expected early next year, BrightRoll will retain its 400-person staff.
Many Wall Streeters are skeptical of Mayer’s strategy. In September, Jeffrey Smith’s hedge fund Starboard Value urged her to merge with AOL and sell shares in Alibaba and Yahoo Japan after noting that “consolidated revenues have remained stagnant and EBITDA [cash flow] has materially decreased” since she took charge.
But company shares are up about 27.6% since late October, when Yahoo reported surprising growth in mobile ad sales in Q3 — TechCrunch reported that a deal with BrightRoll was in the works. Nomura analyst Anthony DiClemente said that while “large transformative acquisitions are unlikely,” he would “not be concerned” about deals with companies such as BrightRoll that support Yahoo’s existing businesses. Pivotal Research Group’s Brian Wieser said that acquiring BrightRoll could be “significant, with global online video ad spending at $11bn, or closer to $9bn ex- China in 2014.”