NEW YORK (BLOOMBERG) - A group of Chinese investors said it's acquiring ad-tech start-up Media.net for about US$900 million (S$1.21 billion) in cash, with plans to eventually sell the company to an obscure telecommunications firm whose shares have been suspended from trading since last year.
Media.net, which is based in Dubai and New York, is touting this as the third-largest ad-tech acquisition in history. However, the complex deal more closely resembles a reverse merger, where a private company takes over a public one and bypasses the formalities of an initial public offering.
Technology entrepreneur Divyank Turakhia started Media.net in 2010 and bootstrapped the business. The company provides the technology powering contextual ads offered by Yahoo! Inc. and Microsoft's Bing search engine. The system is similar to one offered by Google, choosing which ads to show based on the content of the webpage they appear on.
The deal comes as merger activity involving ad-tech companies is declining. There were 43 deals during the first half of the year, according to research firm PitchBook Data. That's a 45 per cent decline from the same period last year.
Media.net generated US$232 million in revenue last year, more than half of which came from mobile visitors, Mr Turakhia said. The US accounts for 90 per cent of Media.net's revenue, but the company is hoping to make a big push into China after the deal, he said.
The consortium buying Media.net is led by Zhang Zhiyong, the chairman of Beijing Miteno Communication Technology Co. His telecom firm has been "moving aggressively" into mobile advertising and hoped to accelerate the transition through an acquisition, Mr Zhang said through a translator.
But the cellular tower provider only has about US$23 million in cash and equivalents, according to data compiled by Bloomberg. To pull off the deal, Miteno needed to orchestrate a two-step financial dance.
First, the financiers made a payment of US$426 million to Mr Turakhia, the founder, chief executive officer, and sole shareholder of Media.net. He said he'll collect the rest later. Then Miteno will acquire Media.net from the consortium, which Turakhia expects will happen before the end of the year. That transaction may involve equity, additional fundraising or a combination of the two, he said.
Trading of Miteno shares on the Shenzhen Stock Exchange has been halted since December, which is unusual. Mr Zhang said suspending a stock is a common regulatory practice when a company is looking at acquisitions. Turakhia said he expected shares to resume trading in September.
Mr Zhang said the structure of the two-part transaction has allowed Miteno to start raising money while waiting for regulatory approval. He said he expects many other companies, especially those in China, to copy the strategy in the future.