On Wednesday, AcuityAds announced it would acquire ADman Media, which it described as the largest video supply-side platform (SSP) for Spanish-speaking markets in Europe and Latin America.
“The ADman Media team has built a leadership position in the core markets that they serve with their video SSP which maximizes revenue for publishers more efficiently versus other video solutions in the market,” CEO Tal Hayek said. “This acquisition will complement our industry-leading AI-powered [artificial intelligence] programmatic offerings for brands and agencies with a unique and differentiated publisher-direct offering and will enable AcuityAds to participate in a larger share of the digital advertising ecosystem to help advertisers and publishers drive greater returns from their digital spend.”
Sangha says this acquisition makes sense on a number of fronts.
“We believe ADman’s video Supply Side Platform (SSP) complements Acuity’s programmatic platform,” the analyst says. “The Company’s video streaming technology can be utilized in numerous formats on mobile as well as desktop environments. The Company has Google and MediaMath as DSP partners with no customer concentration over 20% of total revenues. Management states ADman will be immediately accretive to AcuityAds (excluding one-time transaction and integration costs). ADman is expected to add approximately $10M in annual revenue and is profitable. According to management, the Company is growing at 15-20% per year, but growth should accelerate with the Acuity’s sales team selling ADMan’s products beyond the Spanish speaking markets. (The) Acquisition (is) funded by cash on hand plus future earn-outs. Acuity is initially paying €1.7M in cash with additional performance based payouts over the next three years for a maximum of €12M. Acuity paid less than 2.1x P/Revenue multiple assuming maximum total payout of C$21.4M.
In a research update to clients today, Sangha maintained his “Buy” rating, but raised his one-year price target on the stock from $4.25 to $4.50, implying a return of 210.3 per cent at the time of publication.
Sangha thinks AcuityAds will generate Adjusted EBITDA of $3.2-million on revenue of $58.5-million in 2017. He expects those numbers will improve to EBITDA of $6.4-million on a topline of $82.0-million the following year.
“We believe Acuity is undervalued, currently trading at 0.7x EV/Revenue of our CY18 estimates, which is lower than the peer group at 3.6x EV/Revenue of consensus CY18 estimates,” Sangha explains. “Our target price implies a 2.1x EV/Revenue multiple of our CY18 forecast.”
Disclosure: Cantech Letter Editor Nick Waddell owns shares of AcuityAds.
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