Advertising technology provider TubeMogul (TUBE) has agreed to be acquired for more than $500 million, leaving industry followers to wonder if spring is finally coming to the sector.
Adobe Systems (ADBE) announced Thursday that it has agreed to acquire TubeMogul for about $540 million, or $14 per share. Adobe anticipated the transaction would close during the first quarter of its 2017 fiscal year, or by early March.
Shares of TubeMogul rallied 81.8% to $13.94 on Thursday from their $7.67 close on Wednesday.
Adobe received legal counsel from a Weil, Gotshal & Manges team of Jane Ross, Helyn Goldstein, John Brockland, Randi Singer, Amy Rubin, John Scribner, Steven Tyrrell and Ted Posner.
While the Emeryville, Calif., ad tech provider has fetched a nice premium, it also could have attracted a better deal down the road if it had been able to execute further as a standalone entity, Boenning & Scattergood analyst Murali Sankar said.
"This is a great deal for Adobe. I don't think they're paying a lot," he said, adding that the tie-up with Adobe will give TubeMogul access to data and marketing technology.
BMO Capital Markets analyst Daniel Salmon in a Thursday note said the deal equated to 1.6 times estimated gross revenue for 2017 and 2.3 times estimated gross profit.
As for the buyer, digital video advertising-focused TubeMogul will further expand Adobe's marketing footprint and enable the San Jose, Calif., company to better compete with its rivals.
"Heightened levels of competition between Adobe and Google -- which is expanding further into marketing technology to supplement its ad tech business -- is an important aspect of this transaction for investors to monitor," Pivotal Research Group analyst Brian Wieser wrote in a note Thursday. "This acquisition is also relevant in the context of competition with Oracle and Salesforce, especially in efforts to expand marketing cloud-related products among large agencies and advertisers."
Wieser further noted that Adobe's push into ad tech also underscores the blurring lines between marketing tech and ad tech. The former refers to software that helps organizations manage their own data, while the latter is software that allows companies to manage the planning and media of ads.
Venture capital-backed TubeMogul, which went public in July 2014 at $7 per share, has struggled with its slowing desktop business against the backdrop of a frothy ad tech market. According to its latest Form 10-Q, the company lost $24.5 million on $153.59 million in revenue for the nine months ended Sept. 30.
While ad tech providers rushed to complete initial public offerings and M&A about two years ago largely due to high valuations, most haven't been able to turn a profit in a competitive market. Valuations have subsequently dropped.
Industry followers are hopeful that the chill could start to slowly go away.
In fact, the IPO of Trade Desk (TTD) in September has already reset valuation for top-tier ad tech companies, Salmon said in Thursday's note.
Elsewhere in the ad tech sector, YuMe (YUME) announced Wednesday after the markets close that it has retained Deutsche Bank as its adviser for a strategic review including a sale, merger or a transaction involving some or all of the company's assets. YuMe had been facing pressure from activist investors including Edenbrook Capital, AVI Partners and Viex Capital Advisors.
Private equity firm Vector Capital Management took Sizmek private for about $122 million in September, while a consortium of Chinese investors emerged as the winner of an auction for Media.net Advertising in August.
Officials with Adobe Systems and TubeMogul could not be reached for comment Thursday.