Research has found that the video advertising market is projected to reach $25 billion next year, while the volume of mobile advertising in the U.S. alone is expected to grow five-fold by 2020. Somoto, a company listed on the Tel Aviv Stock Exchange (TASE), announced its acquisition of Israeli adtech company Meme Video for $13 million in cash and shares on Thursday. Meme Video, which specializes in optimization of advertising for various target markets, has been in the black in operating profitably for the past year.
Content optimization for the target market
Meme Video’s video advertising business is based on technology that it and third parties developed. The company has developed tools for the digital video segment, which includes, among other things, Ad Server, Waterfall, tools for big data analysis, and a system of algorithms that makes it possible to optimize the price of digital media space. CMO Ronen Menipaz, CEO Eran Haggiag, CFO Shay Meghnagi, and Nir Waizman founded Meme Video in 2014. All four founders are expected to continue in their current positions after the acquisition is completed. Meme Video reported $9 million in revenue in 2015, with a 25.1% gross profit margin and a $1.4 million operating profit. The company currently has 18 employees.
The acquirer, Somoto, is an Israeli software company specializing in online marketing, video advertising, mobile advertising, and providing distribution services for software and apps in PC, mobile Android, PC Mac, Win, and mobile iOS environments. The acquisition price includes approximately $3.5 million in cash and shares, with additional payments of up to $9.5 million contingent on targets spread over three years, putting the possible total for the deal as high as $13 million. If performance outstrips the targets, the payment could even exceed this figure.
The acquisition constitutes implementation of Somoto’s strategy of diversifying its sources of revenue by focusing on the growing video and mobile advertising segments. Meme Video’s targets reflect cumulative revenue in excess of $100 million and a cumulative net profit of more than $12 million within three years. Completion of the deal, which is contingent on the fulfillment of certain conditions, is slated for August 31, 2016.
Commenting on the acquisition, Somoto CEO Ben Garrun said, “The acquisition is another step in implementing Somoto’s strategy of obtaining a substantial foothold in the video advertising environment, and puts the company ahead in its plan to diversify its sources of revenue. The acquisition comes on top of Somoto’s existing video activity, which is already growing rapidly, and makes a significant contribution to the company’s revenue and profits.”
Garrun added, “Through our previous acquisitions and the acquisition of Meme Video, we intend to take part in the rapid growth of the market. Looking ahead, the video business is projected to make a substantial contribution to the company’s revenue and its diversification, increase its volume of business and profit, and generate higher profits than those we have reported up until now. We believe that the acquisition of Meme Video will lead to the sustained creation of value for our shareholders.” Garrun was referring to the cumulative targets of $100 million in revenue and $12 million in net profit over the coming three years.
This is not Somoto’s first acquisition: Two years ago, it acquired Israeli company Genieo for $34.1 million, and in early 2016, it acquired Israeli startup Tersertude for $3.5 million.