The flowof Chinese capital into foreignad-tech companiesincreased this morning with the acquisition of Media.net for $900 million USD. A consortium will be paying cash for the startup with key operation centers in New York City and Dubai. Eventually the company is set to be acquired from the consortium byMiteno Communication Technology, a Chinese tech conglomerate.The transaction is one of the largest ad-tech dealsin history, ahead of notable exits like Googles $750 million dollar acquisition of AdMob in 2010 and Twitters$350 million dollar acquisition of MoPub in 2013.
Media.net provides a suite of products for creating, targeting, and evaluating advertising campaigns. The company supports publishers by connecting them to relevant adsvia their Yahoo! Bing network.Media.nets publisher inventoryis available through major demand-side platforms and ad-exchanges.
The Chinese ad-tech space is particularly interesting because API integration with many of the largest Chinese technology companies lags behind their American counterparts. This is putting pressure on companies to find innovative ways to target advertising.
To bolster innovation in sectorslike e-Commerce, the Chinese State Council released guidance back in 2015 effectivelyadvocating for investment in the ad-tech space.
To promote e-business application innovation Enhance precision marketing capabilities, to stimulate consumer demand in the market.
All of this contextualizes other ad-tech acquisitions by Chinese firms that have occurred this year despite a downturn in U.S. ad-tech M&A activity. In February, mobile ad-tech startup NativeX was grabbed up by Chinese ad-network Mobvista for $24.5 million. Just four months later, Beijing-based Spearhead Integrated Marketing Communication Group paid $148 million for Smaato, another mobile advertising company.
I should have [entered China]three years ago, said Divyank Turakhia, CEO and founder of Media.net. Im late, I just didnt realize I was this late.
This isnt to say thatTurakhia made a mistake, he will still be walking away from the deal as a newly minted billionaire, while remaining in control of his company.
Divyank, and his brother Bhavin, run a variety of businesses including the Directi Group and Skenzo, a part of Media.net. Skenzo takes a different approachto traffic monetization by focusing on parked domains. Essentially this is a method of making money off registered domainsthat have not been linked to a developed website by targeting individuals who may have made an error in entering the web-address for highly trafficked sites.
Turakhia said his company was not in a hurry to sell, and isgrowing and profitable. Yet, in thinking about the future of the company, he hired bankers to investigate a possible transaction and got back a lot of interest. Media.net received seven bids in the final round and more in earlier rounds with final bids only differing by 10-30 percent, according to Turakhia.
Back in 2014,Ashmore Investment Management Limitedheld a stake in Media.net.An Ashmore mid-year report from the same year cited Media.net as a struggling investment and ultimately included the following statement:
The Companys stake in Media.net was marked down by 39% due to deteriorating
operating performance and limited diversification of revenues which depressed
the multiple at which its earnings are valued.
Of course, just two months later, Directi would end up buying those shares back. Media.net was the sole company out of 11 total, started by the brothers, that received outside investment.
The companys Yahoo Bing Contextual Ads have been a significant revenue stream for the company, and as of the close of this deal, 90 percent of Media.nets revenue is concentrated in theU.S. market. Zhiyong Zhang, the chairman of Beijing Miteno Communication Technology Co. Ltd, made a point to note that Miteno can strengthenMedia.net by means of capital support towards global growth.
The Chinese marketinherently presents achallenge for the foreign company. Mr. Zhang hinted at a potential strategic data play for the company trying to find a footholdin a market dominated by mobile devices.
Turakhia is bullish on diversification and the potential for up-selling that comes from a single vendor offering multiple products.Besides expanding throughout Asia,Turakhia wants to double down on video and focus more on mobile apps. He is also looking to forge additionalpartnerships and expand technology licensing to DSPs and SSPs.
The deal has already closed and will be paid out in all cash. However, the first$426 million will be paid immediately from the consortium, while another $474 million will be coming as part of an agreed upon payment schedule. It is worth nothing thatMitenoshares have been frozen on the Shenzhen Stock Exchangefor the last eight months.
The primary reason for the acquisition was not [Media.nets] high profit, but more of the management team and the technology staff, saidMr.Zhang.
While the transaction is not an acquihire, Mr. Zhang connectsa lot of Media.nets value toTurakhias leadership.Turakhia is famous for his daredevil approach to life and business. He started his first company atat age 14 and made his first millionat 18. Today, he performsaerial acrobatics for fun but if thats an average day off, we would love to know how he plans to celebrate joining the three commas club.