Rhythmone to acquire YuMe for $185m

Rhythmone (LON: RTHM) have announced they are set to acquire rival US company YuMe in a cash and shares deal worth US$185m.

In H1 17 YuMe reported revenue of $79m (-1%) with EBITDA of $12m (margin up YOY from 4% to 15%). Assuming YuMe achieve the same EBITDA in H2 17, this equates to a full year EBITDA of $24m. Based on that level of earnings, RTHM paid roughly 7-8x EBITDA for YuMe, which appears a reasonable level versus other transactions in the sector. 

The London-based digital advertising technology company said in their statement today...

"Strategically, the Company believes the Acquisition will result in a combined entity with a complete end-to-end platform in one of the fastest growing segments of the industry, with the resources, relationships, and talent to drive earnings growth both organically and through other potential acquisitions."

RTHM shares jumped 5% with the news of the takeover.

The board noted the acquisition of the video advertising company based in California accelerates their strategy to build a unified programmatic platform with unique audiences of differentiated quality, at scale.

Of the 34.7m shares currently held in YuMe, each stockholder will be entitled to $5.25 per share held. This is made up of $1.70 (£1.32) in cash and 0.7325 Consolidated Shares, representing $3.55 (£2.75). In calculating the number of Consolidated Shares to be issued, a figure of 37.5 pence per Existing Share has been used.

Panmure's morning note gave their take on the acquisition, reiterating their Buy stance on Rhythmone, and noting:

"While [YuMe] has historically been primarily a direct-sold business, programmatic sales have begun to grow rapidly, and could be further boosted in our view through combination with RTHM."

The acquisition is seen as another example of consolidation in the ad tech industry, which is largely fragmented outside the realms of Google and Facebook due to a number of factors in which we delved into earlier this year. The industry is slowly aligning, however, proven by this deal announced today, as well as other recent deals, included the Taptica acquisition of AreaOne last year.

YuMe's market cap of $175m (£135m) is not far short of RTHM's market cap of £173m. Rhythmone trades at a PE ratio of 21x versus the industry median of 18x.