Turn Acquisition

Turn this week was acquired by Amobee, the ad tech subsidiary of SingTel, a telecom based out of Singapore. The deal was for an announced price of $310M. In this lift letter we'll provide a little context and discuss some relevant industry context. 

First, who is SingTel: as discussed they are a Singapore-based telecom serving greater Asia. But more relevantly, they have acquired a number of ad tech companies in the past few years and built a meaningful portfolio. This includes Amobee, the entity making the acquisition here, which was a mobile marketing platform acquired in 2012 for $321M. They purchased a GradientX in 2013, a small mobile focused DSP. In 2014, Amobee purchased Adconion, a large cross device ad network for around 200m and Kontera, a digital intelligence and media platform known for mobile utilization reports, for 150m. Finally this year they hit roughly $1B in ad tech acquisitions, buying Turn for $320M. It is evident that SingTel is committed to developing itself as a top tier ad tech platform, substantially through acquisitions. 

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Turn, for its part, was among the old guard of RTB DSPs. The company was founded in 2004 and was, at one point, among the largest and most successful DSPs. They raised roughly $170m along the way. But like many early DSPs, the changing tides of the agency model adversely impacted their business model. Specifically, much like Rocketfuel, Quantcast and others, they competed, to some degree, on a campaign / advertiser level. While they had certain brands that would prefer them (and Turn's poster child was Kraft), there was generally less enterprise-level relationship - so there was less recurring revenue. This allowed the DSPs to grow quickly and collect fat margins, it also left them somewhat exposed. First, companies IPO'd, which meant agencies could see their margins. This led to the dramatic collapse of companies like Rocketfuel. It also led to agencies looking for more fee transparency.

(Note: this paragraph is a bit of a over-simplification) This meant DSPs could go in one of two directions - provide the fee transparency and create deeper agency partnerships, but often at the expense of their margins (making this choice financially impossible for some), or cut the agencies out and go direct to the marketer. DSPs like The Trade Desk choose the former route. Given the rise and relative success of agency trade desks, this was relatively prescient. Turn chose the other route, trying to establish enterprise-level brand partnerships. This was much more problematic and ultimately not terribly successful. All DSPs are now, to some degree, choosing the agency partnerships route, and it's relatively straightforward to see why. 

Rocketfuel, which is the poster child for the IO model, is actively trying to switch to a more transparent model - but they have yet to convince Wall Street that they really are this sort of company (only 30% of their revenue comes via self service programmatic). As a result they are traded at a multiple of about 1x revenues. The Trade Desk, meanwhile, gets 100% of their revenue this way and thus they are traded at a SAAS-like 5x-6x revenue. Even though The Trade Desk isn't technically SAAS in the sense of contractually-mandated revenue on an annually basis, they were able to show in their IPO that their revenue was "re-occurring," meaning that cohorts of customers that signed up in any given year had relatively little churn and showed annual growth in spend - both the effective characteristics that people look for in SAAS companies. Many of the failed ad tech companies that IPOd are used the IO model and traded at 1x or less, and could not show the same sort of SAASy business as the The Trade Desk. Turn was in the middle of its transition and it was sold for about 3x it's revenue (meaning about $100M in revenue last year).  

This was not a great outcome for Turn for a number of reasons. First, based on the capital raised the employees likely got close to nothing (see the Preferred Shared lift letter here: Preferred Shares). Second, Turn has seemingly been on the decline recently. Today, when we talk about tier-1 DSPs, it's really DBM and The Trade Desk, maybe MediaMath. A few years ago, that cohort definitely included Turn (and not The Trade Desk). Turn was losing customers and market share. They apparently developed and deployed a flawed video product, meaning they lost significant share - and had to spend significant resources redeveloping. This delayed their entry into other markets, including native. 

Finally, it's worth noting that this continues the growth of telecom in ad tech. While SingTel doesn't have a strong US presence, the US regulatory environment has changed in some dramatic ways since Trump was elected. This is especially acute with Ajit Pai taking over as the new head of the FCC. A hugely significant move out of the FCC was to begin the roll-back of rules that would require ISPs to get user consent before using their data for purposes such as advertising. This creates a huge and powerful position for the telcos to more forcefully enter the ad tech space (as alluded to in the Lift Letter on the VZ / Y! acquisition here: Verizon / AOL + Yahoo! Merger).