LiveRamp paid $150 million for a 20-person ad-tech firm, and it shows the massive forward bets that advertisers are making on the future of television
- Ad-tech firm LiveRamp has acquired Data Plus Math, a company that helps advertisers track what consumers buy after they watch TV ads, in a cash-and-stock deal valued at $150 million.
- Data Plus Math is being sold at a 24X to 30X multiple of revenue, which is high even for its sector, experts say.
- LiveRamp sees a lot of potential for the acquisition to grow its revenue while serving advertisers that are demanding digital-like data on their video spending, though.
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Ad-tech companies are racing into connected TV to help marketers buy and measure their ads better - and becoming attractive acquisition targets.
LiveRamp said it intends to acquire TV measurement firm Data Plus Math for $120 million and $30 million in stock, which is equivalent to a $150 million deal. Data Plus Math has 20 employees who will join LiveRamp, including co-founders John Hoctor and Matthew Emans, and is expected to close during the company's fiscal second quarter.
LiveRamp helps advertisers target and measure ads by matching offline data like purchase history and CRM with digital stats. CEO Scott Howe said the acquisition will help advertisers who want to make TV act more like digital advertising. Three-year-old Data Plus Math helps advertisers solve attribution, which measures whether people took an action like visiting a store or website after seeing an ad. Its clients include advertisers and media companies like NBCUniversal and A+E Networks.
"Television in its current state and form hasn't changed much in 30 years," Howe said. "Virtually everybody is frustrated with it."
As a result, a cottage industry of ad-tech companies have been tackling TV advertising issues like measurement and frequency capping.
LiveRamp is betting that its pricey acquisition will pay off
LiveRamp is making a big, forward-thinking bet with its acquisition. Based on Data Plus Math's projected $5 million in revenue and LiveRamp's price of $120 million to $150 million (dependant on stock), Data Plus Math is being sold at between a 24X to 30X multiple of revenue, which two sources with M&A experience said was high. According to one, the average valuation for an ad-tech company is 4X to 6X while that of marketing cloud companies is closer to 9X to 10X.
"Based on its revenues, that is a very, very rich valuation, [and] it is likely that there was a lot of competitive bidding," said Rafat Ali, founder of travel-media company Skift and a frequent commenter on valuations. "Clearly LiveRamp sees a lot of future potential for this deal. That is why it is paying up this much premium for the deal."
Howe acknowledged that the price was high but said he expects for LiveRamp to continue to be profitable. Data Plus Math is factored into LiveRamp's new guidance updates for investors. For the fiscal 2020 year, LiveRamp revised its revenue projection to $363 million to $377 million, representing a 27% to 32% year-over-jump.
"If you look at past revenue, you would say that this is expensive, but this is a great set of capabilities, a great team and the business is growing at a meteoric rate," he said. "The right way to look at it is the forward revenue. We think that's taking off next year and will continue to grow at a pretty significant rate."
Ratko Vidakovic, founder and principal at ad-tech consulting firm AdOps, said factors other than Data Plus Math's revenue could have been more important in the deal.
"Just imagine what a strong measurement and attribution solution for connected TV could be worth to LiveRamp, given its existing customer base and market presence," he said. "From that perspective, $150 million could be easily justified."
LiveRamp is "aggressively" trying to fix TV advertising
Howe said that LiveRamp has been working with Data Plus Math to help clients measure data for a year, and the two companies share 10 clients.
LiveRamp will plug its first and third-party data from advertisers into Data Plus Math's platform, said Allison Metcalfe, LiveRamp's general manager of TV. The company plans to roll out a product allowing broadcasters to sell ads based on a guarantee that a campaign will result in sales for advertisers. Networks like NBCUniversal have started pitching advertisers such deals to prove that TV is as effective as digital for driving sales.
The company also plans to sell advertisers reports that show viewers are being repeatedly shown the same ads. Howe said that the reports will be priced "really aggressively," though he wouldn't say how much they will cost.
"We believe that the industry has been starved for innovation and measurement," he said. "We're building tools for anyone and everyone and will always price for the entire industry to be able to afford and grow our offerings."
Data Plus Math is LiveRamp's second acquisition this year. In April, it acquired Dutch tech firm Faktor to help marketers prepare for upcoming US privacy regulations like the California Consumer Privacy Act.
Howe said LiveRamp plans acquisitions aimed at helping marketers manage data from different sources.
"Our belief is that it's impossible to try and do everything," he said. "Our ambition is to be the wiring and plumbing that powers the entire industry."