AOL’s acquisition of Millennial Media
On September 3, 2015, AOL announced the acquisition of Millennial Media (MM) for $1.75 per share. The acquisition is expected to close by the end of this year. According to a report by The Wall Street Journal citing AOL executives, the deal is valued at $238 million including net debt. AOL was acquired by Verizon Communications (VZ) earlier this year. Millennial Media is in the business of selling mobile ads through its programmatic ad-buying platform to app developers and mobile web publishers.
The stock price of Millennial Media has risen by a steep 30.6% since the announcement of the acquisition. As the below chart indicates, the stock price has risen by ~38% over the past month.
With this acquisition, AOL intends to compete with its bigger competitors in the mobile ad industry such as Facebook (FB) and Google (GOOG). You can gain diversified exposure to Facebook by investing in the SPDR S&P 500 ETF (SPY), which maintains 1.15% of its holdings in the stock.
Rationale behind the acquisition
According to a report by eMarketer, 69% of mobile ad spending will be through programmatic ad-buying platforms, and programmatic ad buying in the video format is expected to reach $4 billion by 2016. Programmatic ad buying is a technological framework for conducting automatic real-time auctions of digital display ads through an ad exchange.
We will discuss the rationale behind this acquisition in more detail in the subsequent parts of this series.