RocketFuel’s announced acquisition of [x+1] is the first major combination of two significant, independent AdTech companies in the current M&A wave, combining a leading DSP and DMP to create a more holistic (and more SaaS-like) platform.

Our quick take:

  • This is an interesting acquisition, in that it is the first time one of the recently public, independent AdTech players has made an acquisition of this size and this strategic in nature
  • Combining what is essentially a DSP (RocketFuel) with a DMP ([x+1]) fits our view of the evolution of a “full demand side platform” and has a strong strategic rationale: the better the data, the more accurate the bid price
  • RocketFuel is paying $100min cash plus about $100-130m in shares (depending whether you look at the share price before or after the announcement/earnings call)
  • [x+1] will do about $100m in gross revenues this year and about $25m of gross profit, pricing the deal at around about 10x 2014E gross profit and just more than 2x gross revenue. However, X+1 has properties of an enterprise SaaS platform which helps justify the premium and DMPs are clearly strategic AdTech assets – witness Oracle’s $400m acquisition of BlueKai earlier this year and with Turn reportedly shopping itself at $1bn+ prior to its recent round. But to put the price in contrast, RocketFuel is self is trading at 4x 2014E gross profit and Criteo 4.5x
  • On the earnings call, RocketFuel acknowledged the challenges of the DSP market place, with agencies use of internal platforms and trading desks putting pressure on sales. RocketFuel also discussed its Mission Control SaaS DSP (i.e. where a client uses RocketFuel’s software to manage a campaign and buy inventory directly, rather than having RocketFuel execute the campaign), and framed both Mission Control and [x+1] as steps on its evolution to becoming a SaaS platform
  • The call also highlighted perception issues regarding RTB inventory quality – we continue to believe fraud detection, attribution and verification will continue to be areas of significant M&A and investment interest over the next 12-24 months

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