With the waves from the big $1.17 Billion Magnite acquisition of SpotX splash still crashing around the video advertising industry ocean, it’s a good time to look a bit closer at why a deal like this has happened. And maybe just hint that this was a steal for Magnite...
Ironically the best resource to use for this deep dive analysis comes from a Magnite competitor: Xandr.
Their recent OTT industry report outlines, quite nicely, the size of the OTT prize and the key drivers and barriers to reaching the pot of gold. Drivers and barriers that a combined Magnite + SpotX force are perfectly able to tackle.
The Global Gap between Linear and Digital Video Advertising is Narrowing Quickly
From Mexico to Australia, Germany to the US - every market is seeing the shift from Linear TV to Digital Video Ad Spend.
Here, in raw numbers, is the market sizing numbers needed for Magnite to make a major billion dollar move.
Scale, Education and Quality of Data are Dragging the Shift
According to the Xandr report, the top 3 barriers for the shift happening quicker are:
- Lack of Supply
- Lack of Understanding the Ecosystem
- Availability and Quality of Data
A Magnite + SpotX tie up can take all of these 3 barriers out at once. All wrapped up in a nice and neat one stop shop service for the video ad buying industry.
Gaining Targeting Efficiencies, Access to New Audience at Scale and First Mover Advantages are Fuelling the Shift
If Magnite + SpotX can fan the flames that are driving this shift then that makes this deal even more of a no brainer.
The top 3 drivers for shifting spend from Linear TV budgets to Digital Video budgets were determined as:
- Gaining Targeting Efficiencies (think programmatic approach);
- Being able to deliver TV style campaigns at increased scale;
- Gaining a competitive advantage (as the viewership shifts, so should the ad buyer).
SpotX has spent over 14 years of R&D / Innovation effort focusing on solving and optimising these exact pieces.
Along with the Telaria stack (that is a core part of Magnite), there will be plenty of smart tech, IP and people all focused on these specific value propositions.
At 10X multiple did Magnite get SpotX on the Cheap?
SpotX’s 2020 revenue was $116 Million, so an acquisition price of $1.17 Billion, or 10X multiple, that seems low.
SaaS businesses are generally getting 15X - 19X multiples (according to Glen Waters, Founder and Head of the PwC Raise Programme), and recently Vimeo’s $5 Billion valuation peg it around a 20X multiple.
But take a closer look, only $67 Million of the $116 Million is from CTV. So now we’re back to a 18X multiple. More inline with current market multiples. But a multiple that is de-risked by the other half of the revenue coming from different sectors.
The Bet is On: Can Magnite + SpotX Keep Providing Quality at Scale?
Magnite President & CEO Michael Barrett has stated a major outcome of this deal is that Magnite will be the largest independent video advertising company.
But is it just all about size? Or does quality still need to come first?
That’s the ultimate bet being placed with this deal. Can the new company achieve major scale without sacrificing quality?
Time will tell!