AppNexus Contemplates 'Plan B' Should IPO Market Remain Closed

appnexus-ipoAppNexus’ management and investors have spent the better part of a year preparing to take the company public. But the harsh (and getting harsher) IPO climate means they might not get to realize that ambition any time soon.

As a result, even while AppNexus remains poised for a public offering – and could in fact go public tomorrow from a legal and financial readiness standpoint – the company has also begun to explore "options" that include a possible sale of the business, according to multiple sources.

The company has lately established a relationship with Goldman Sachs, as previously reported by Business Insider. It has also taken meetings with other banks representing potential buyers, according to sources with knowledge of AppNexus' thinking.

These discussions are early and informal, the beginnings of an insurance policy should the desultory IPO market not recover before the company is forced to refresh its coffers. AppNexus has raised more than $200 million since its founding in 2007.

However none of these banks has been designated as the official underwriter of an IPO, sources say.

Some investment banks that have met with CEO Brian O'Kelley and President Michael Rubenstein have proposed scenarios where AppNexus would acquire one or more smaller companies, possibly as a prelude to a sale of the whole business. Such an arrangement would be modeled in some ways on AOL's rat-a-tat acquisitions of Adap.tv, Gravity, Convertro and PrecisionDemand prior to its $4.4 billion sale to Verizon.

But one may reasonably wonder how much value was created by those transactions, since during the time period they cover AOL grew its market cap by about $500 million – a large figure but significantly less than the cumulative cost of those ad platforms.

AppNexus too has made some moves that could increase its appeal to "strategics," as large acquisitive companies are known (think Oracle, Adobe and Verizon), through a combination of acquisitions and organic product builds. Last year it bought inventory forecaster Yieldex for a reported $100 million and ad server Open AdStream (OAS) for about $155 million, as part of an investment deal with OAS's then-owner, WPP Group.

The company has also ramped up its demand-side offering. AppNexus hopes to become a strong independent competitor to Google, and one of the small group of companies with a complete tech stack that includes both buy- and sell-side components.

AppNexus has no specific plans to buy up more companies, but has taken meetings with banks that have proposed M&A deals where it would be the acquirer.

"If you're one of these bankers, the perfect lineup is to convince AppNexus that you are their bank, have them acquire someone, take them public, then find a strategic to take them private again," said one investment analyst who tracks the digital media sector.

Video To The Rescue

AppNexus also has accelerated plans around digital video advertising, which could assist an eventual IPO. Recent developments in the video landscape are seen internally as a boon to those plans, according to someone with knowledge of the company's thinking.

Banks kept asking O'Kelley and Rubenstein about AppNexus’ video strategy, and many investors preached that a full-stack video platform with proven commercial traction could unlock the "full value" in an IPO. AppNexus already had planned to increase its investment in video ad mediation for publishers, and in Q3 it began working on a video ad server/SSP product. This product was meant to directly compete with Facebook's LiveRail and Google's DoubleClick.

Now the company thinks Facebook's sudden move to sunset its video ad server (AdExchanger story) will help it achieve sales traction for the AppNexus video platform earlier than it could have hoped.

According to a source with knowledge of the company's plans, management believes that "even if you’re a current LiveRail client, it’s clear that Facebook is moving away from what was always an ancillary business, so building your business on their platform isn’t the best long-term play." To seize this opportunity the company has accelerated its rollout plans, and plans to deliver an aggressive pitch to LiveRail clients in Q2 2016.

Additionally, the insider added, AppNexus sees promise in recently reported allegations around invalid inventory on Yahoo's BrightRoll ad platform (though BrightRoll has sharply refuted those claims).

AppNexus hopes these improved prospects around video will improve the company's 2017 projections, which would in turn please bankers evaluating its IPO viability. According to the source, the thinking is, "They can’t control extrinsic elements like volatile markets, but if they capture this opportunity, they may be sitting in a more advantageous position when they make their decision."

Ready Or Not

Sources close to AppNexus say the plan was always to be fully IPO-ready moving into 2016, and the company has largely achieved that milestone, having prepared itself to meet federal requirements for quarterly disclosure and investor relations. Today, the private company "mimics and shadows" all of those public company functions, even though it's not yet required to.

Much of the company's preparedness is thanks to Jonathan Hsu, a seasoned ad tech exec who took 24/7 Real Media public and oversaw its eventual sale to WPP Group in 2007. Hsu joined AppNexus in April 2014, when public ad tech stocks still looked relatively attractive.

Since his hiring, most of those companies are trading dramatically lower. Criteo and Rubicon Project are both down 25%, Tremor Media is down 57% and Rocket Fuel is down 92%.

These declines reflect investor cynicism about advertising technology, and as long as that cynicism dominates it's unlikely AppNexus will be able to garner sufficient interest to underwrite a public offering. However, if the negative pressure on IPOs – exemplified by the poor performance of both publicly traded ad tech stocks and consumer-facing tech stocks like Twitter, GoPro, Etsy and Fitbit – improves, the company has every intention of going public.

AppNexus declined to be interviewed for this story.

1 Comment

  1. If the founders and VC's sold out their shares, where would that leave the 1000 early and current employees? Is it a plausible scenario that they could get screwed by holding the remaining equity with no buyer or IPO in sight, while the founder and VC's cash out? Not sure if that could actually happen, thoughts?

    Curious what people think this means for past and current employee shareholders.

    Thanks.

    Reply

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