Investors are torn over whether AppNexus's sale to AT&T was a 'great exit' or a total failure

AppNexus

AT&T has purchased the digital ad firm AppNexus for an undisclosed amount, though reports peg the exit price at about $1.6 billion.
The acquisition is one of the largest in the ad-tech space in a decade.
The response from ad-tech investors have ranged from "great exit" to "it's f****** crazy."

When news began circulating of an imminent acquisition deal between AT&T and AppNexus during Cannes Lions, the companies demurred, noting that rumors abound at the event. But just a few days later, AT&T confirmed it had finally scooped up the programmatic advertising marketplace.

The news ricocheted through a giddy ad-tech industry.

"This is one of the largest deals in the space ever," digital ad veteran/investor Eric Franchi told Business Insider, pointing to a dearth of unicorns in the New York tech scene despite its reputation as a burgeoning hub for start ups.

And New York just sold its biggest one.

The deal has not yet closed, but it's been reported that the exit price will land around $1.6 billion.

AT&T and AppNexus did not immediately respond to a request for comment.

The reported deal price has split executives and venture capitalists who work in the ad-tech industry into two camps: those that believe the deal was excellent, and those that think it could've been better.

Is a $1.6 billion deal good or bad?

"Overall, exits are rare; this is great," Semil Shah, a venture partner at Lightspeed, told Business Insider. "Most are way under 100 million so to get to $1.5 or $2 billion is amazing."

AppNexus' reported deal price sets it among some of the largest ad tech acquisitions in history, falling behind Microsoft's $6 billion acquisition of digital ad agency aQuantive, and Google's $3.1 billion deal for online advertiser DoubleClick. Both the aQuantive and DoubleClick acquisitions happened over a decade ago in 2007.

The estimated revenue multiple on a $1.6 billion deal has some in the industry praising the deal.

"The exit represents a healthy 6 or 7x multiple," said Michael Katz, CEO of customer data platform mParticle. AppNexus doesn't make it's financial figures publicly available, but revenues are likely around $300 million, according to Business Insider estimates.

"The deal is great for the New York tech ecosystem," Katz said. "It strengthens the community."

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'It's good, but not as good as if they went public.'

Some investors believe while the deal was overall good, it could've been a little better.

"Could it have gone higher? Sure," a tech investor told Business Insider. "But there is lots of carnage in adtech, there are lots of bad deals and walking dead. To be bought out by AT&T as a foundational element for its big, multibillion dollar push into advertising," is impressive, he continued.

Others are not so convinced.

"Is this a good valuation? No," a New York venture capitalist told Business Insider. "It's below the last price they raised a round at," he said, noting the $1.8 billion valuation AppNexus had in 2015.

And comparisons to competitors add another layer to consider when weighing the reported $1.6 billion acquisition price. Ad-tech competitor Trade Desk has a market valuation of $3.9 billion.

"Given that they were the biggest company in this space in awhile and I assume they are close in revenue to Trade Desk, the fact they are valued at half Trade Desk is not good," the New York venture capitalist said. "I'm surprised they didn't try and go public," he continued. "It's good, but not as good as if they went public."

The AppNexus IPO that never was

AppNexus has been promising an IPO since 2013. Its reticence to enter the space may be partially due to the dismal results of tech IPOs in recent years. For instance, the ad-tech firm Rubicon's 2014 IPO was largely seen a failure, losing 90% of its value after it went public. Similarly, the company Rocket Fuel was once valued at $2 billion – and sold last year for just north of $125 million.

Snap's IPO failure also spooked bankers advising on deals, Business Insider's Jim Edwards reported.

Some believe that AT&T actually overpaid for the company. "AT&T is f****** crazy," a West Coast VC told Business Insider. "It completely overpaid paid two times as much or three times as much as AppNexus was worth." The VC pointed to the fact that despite having high revenues, it has low margins.

"If someone didn't buy them it would've died. What is that horribly low margin business worth?" The VC said.

The longer startups wait, the more antsy investors get

The news of AppNexus' acquisition spurred excitement in the industry in part due to the relative infrequence of such events.

"It's more another reminder that exits of that size take a long time when they happen in traditionally out of favor categories," Shah said. "People aren't rushing into ad-tech categories."

And waiting tends to make investors, eager to see a return, anxious. Venrock led the first institutional round a decade ago, investing $5.7 million for more than 20% ownership.

"The VCs were probably getting a little antsy because of the 10 year life on funds, so when AT&T came around they said let's do something," the New York venture capitalist said.

To some, the conjecture around the deal price is just uninformed noise.

"That's just armchair quarterbacking," Katz said. "Prognosticating by people that don't have definitive knowledge. Management and lead investors thought good deal, and the numbers accurately reflect that."

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