Online advertising is a game of scale, but one attempt has fallen apart to consolidate two competitors to better take on Google, and Facebook. Taboola and Outbrain, startups that each provide ad-based content recommendation platforms to publishers, have called off an $850-million planned merger that would have valued the combined company at over $2 billion. The Israeli press had rumored the news of the cancellation, and TechCrunch has now confirmed it with both companies as well.
“Because of COVID-19 we have seen changing market conditions, and we decided to end the deal,” said a person close to the merger, who asked to remain anonymous. “It’s been such a long road, and it’s not great … but walking away is the right move.” We understand there will be a formal announcement in the next few days.
The deal had been in the making for years but was finally pulled together in October 2019, about 11 months ago. In the meantime, though, a combination of factors has impeded its progress.
The world health pandemic was the first of those. Both Taboola’s and Outbrain’s businesses are based on widgets they integrate with publisher’s sites, which provide a way for publishers to both recirculate their content and share it, along with sponsored content and ads, on other sites that also run the widgets. But in the last eight months, the ad-based media world has taken a nosedive as many large brands have reined in their ad budgets, and that has had a knock-on effect on other players within the ecosystem.
And that impacted prospects for financing. The merger between the two was originally intended to have cash and stock components — specifically 30 percent of Outbrain’s value for $250 million in cash to be paid to shareholders and employees of Outbrain — but in the contracting market, the financiers who provided the capital for the cash component stalled. That deal ended up expiring in August, and it wasn’t extended. And then, we understand, attempts to translate the deal into an all-stock transaction were unpalatable to Outbrain.
On top of that was what was described to me as a “challenging cultural fit” between the two firms, something that only became more apparent as the deal closing dragged on. That pointed out once again that the cash element of the deal was important: “If you get the cash, you reduce the risk, so we became even more uncomfortable without that,” the source said.
The third hurdle concerned ongoing regulatory issues. While the U.S. regulators appeared to nominally approve the deal, both in the U.K. were still under investigation for the merger. And in Israel, investigations that should have continued for several more months. In the UK, there are currently no significant competitors in companies, raising antitrust concerns.
Taboola and Outbrain were both profitable going into the deal, each claiming annual revenues of some $1 billion. Taboola has raised some $160 million from investors including Comcast, Pitango, and Fidelity. Outbrain had raised $194 million, including investors such as Index, HarborVest, and Lightspeed.
Conclusion:
From what we understand, both companies will continue to look at ways they can keep growing, even if they are not as a team. This will include weighing up other strategic acquisitions and other opportunities, as there remain some truisms in the media and advertising worlds.
