If Rubicon Project officially goes on the selling block, what are its prospects?
The company, which has hired Morgan Stanley to explore a sale, according to The Wall Street Journal, has suffered from tanking stock, layoffs and leadership changes over the past year, and it apparently isn’t the only company of its kind in play. Other supply-side platforms (SSPs) also have been shopping themselves around, including at CES two weeks ago.
AdExchanger asked the CEOs of PubMatic, Index Exchange, OpenX and the buy-side services company Huddled Masses to weigh in on the future of the supply-side platform space.
Rubicon declined to comment.
Who Would Buy Rubicon Project?
Private equity or strategics – like telcos, media companies, ecommerce companies or other ad tech – will be most interested in Rubicon, said PubMatic CEO Rajeev Goel.
Huddled Masses CEO Charles Cantu listed telcos, satellite and cable companies first, and added agency holding companies to the list.
Adding some credence to the media-company hypothesis, an AdExchanger source said Rubicon had taken meetings with large, traditional media companies but noted that a meeting alone can mean very little. And of course News Corp. is a significant Rubicon investor (although it also has a stake in competitor AppNexus).
Private equity could be attracted to Rubicon Project because it’s profitable, has cash and good cash flow and is trading at a low multiple, meaning the stock is priced well, Goel said. “This asset has many of the characteristics that private equity firms look for in a take-private [deal], including scale.”
Another theory: A private equity firm could potentially combine multiple supply-side platforms into one giant, scaled offering, said sources with varying knowledge of this deal option. Given the complexity of a deal involving multiple companies, Rubicon Project would need to retain a bank.
But while “the economies of scale will be so good they will price every business out of the market, it relies on a lot of things to go right for it to work,” said a source with knowledge of the potential deal.
What Does A Buyer Get?
“Buying Rubicon isn’t a clear path to success,” Cantu said. “They’ve already gone on record saying they’re behind in header bidding, which means they’re likely behind in server-to-server [header bidding] and beyond options. Their true value relies on contracts both with publishers and, if they have them, buyers.”
And the advent of header bidding means the relationships with top comScore publishers that used to differentiate Rubicon don’t mean as much anymore. The equalized access header bidding creates thins margins as exchanges try to compete with each other, said Index Exchange CEO Andrew Casale.
“The supply side is now a can of Coke, and two things are happening,” Casale said. “One side of the can is being pushed in because take rates are going down. That’s what the header did. The other side is being pushed in because it’s expensive to access the header.”
There’s yet another twist ahead. Header bidding dramatically raises infrastructure costs, which could put additional pressure on supply-side platforms, including Rubicon, which will need to increase their investments.
“We are projecting double to triple the request volume in a year,” Casale said. “Going from 1 trillion [requests] to 2 to 3 trillion is an eight-figure investment, and there is no capital out there. That math doesn’t work.”
Is Buying Rubicon Project A Good Idea Or A Bad Idea?
“Good idea to sell? Yes,” Cantu said. “Good idea to buy? Maybe.”
A prospective buyer would get “a key media and data gateway to the high-growth programmatic ecosystem,” Goel said.
OpenX CEO Tim Cadogan also sees value in a company that’s part of a group making “enduring changes to how advertising is bought and sold.” Buying at this time might be attractive to “contrarian” investors.
“While the performance of this group of companies has obviously been mixed from a financial performance and valuation perspective, fundamental economic value is being created,” Cadogan said. “For the right investors … participating by working together with one or more of the leading independent players makes sense.”
But Cantu says these assets don’t add up.
“Even at less than a $400 million price tag [Rubicon’s market cap], there are others that have built the tech or on the tech that can easily be acquired for a fraction of the investment and deliver a great deal of upside value and return,” Cantu said.
Rubicon has tech and talent, but unless “documentation, contracts with publishers and perhaps a few other intangibles” add up to hundreds of million of value, “it’s a deal worth avoiding,” he added.
If Rubicon’s potential acquirers make the same judgment as Cantu, supply-side platforms could find themselves in trouble as header bidding forces them to rethink their business models and ramp up investments in infrastructure.
“The other [possibility] is the wheels fall off the bus,” Casale said. “I think everyone likes to say companies don’t just go away. But if we do all believe there was an overinvestment in ad tech, and the trends of major cash injection cooled 18 months ago, we are running into burn-rate problems. Now is the time we are going to see things happen.”
