Five Reasons Why MediaMath Could Buy Rubicon Project (And Two Reasons It Won’t)

Ad tech is a buyer’s market right now, and MediaMath just got $180 million in cash to fund acquisitions.

Could one of those targets be Rubicon Project?

“That’s an interesting idea,” MediaMath CEO Joe Zawadzki told AdExchanger Thursday. “No, we are not buying them at this time.”

The idea of a top-tier DSP and SSP combining has long been rumored but never enacted.

But the leading players do both: Google operates a DSP and an SSP. AT&T bought AppNexus, which ran a robust sell-side business and a DSP that counted AT&T as a client. Plus, Amazon and Facebook both run buy-side and sell-side businesses, allowing them to tap into publishers beyond their own properties.

Could the stars align and MediaMath take Rubicon Project private? Here are five reasons why it could happen – and two reasons why it won’t.

1. MediaMath’s strategic road map includes “supply chain re-engineering.”

Rubicon Project offers hooks into publishers, and because MediaMath intends to build or buy around its supply chain, it has already done more work on the supply side.

For instance, it created a product called Curated Market last year to find quality audiences on brand-safe sites, addressing marketer concerns about fraud, viewability and low-quality supply.

MediaMath also explored connecting with publishers directly, but maintaining healthy connections was too difficult, according to multiple industry sources. Since then, it’s focused on strengthening its partnership with Rubicon Project, specifically around its Curated Market – a friendship that could blossom into something more.

2. MediaMath can probably afford it – for now.

Rubicon’s enterprise value is under $50 million – well within MediaMath’s reach.

Although Rubicon’s market capitalization is around $170 million, it also keeps a lot of cash to provide liquidity to compensate for overdue payments and fund its lowered take rates – meaning Rubicon isn’t quite as much of a deal as it seems.

Rubicon’s stock could continue go up because AT&T’s AppNexus acquisition increased the value of an SSP and changed the competitive landscape. Rubicon is trading at less than $4 per share, but Craig-Hallum analyst Jason Kreyer estimated Rubicon would sell for $19-$24 per share if a buyer used AppNexus’ advertising spend or revenue as a guide. He’s giving Rubicon a “buy” rating.

Plus, AT&T’s acquisition of AppNexus may lead its publishers (such as Microsoft) to seek an independent tech provider, Kreyer said.

And the acquisition likely ends AppNexus’ price war.

“With AppNexus now to be folded into AT&T, we are increasingly comfortable that take rates won’t be a race to the bottom, and will stabilize at current levels (or potentially higher),” Kreyer said in his research note.

3. There’s no future for standalone DSPs.

“The financials are just too excruciating and the tech is so commoditized,” said Emily Del Greco, founder of programmatic consultancy Del Greco Solutions. “Unless you have access to privileged demand, privileged supply or privileged data, it is very hard to make a play to be a Fortune 500 [company’s] primary bidder.”

Plus, an end-to-end stack will be more efficient, enabling it to compete against walled gardens and the duopoly and prioritize its own supply to lower costs, as AppNexus did, said Ana Milicevic, principal and co-founder of consultancy Sparrow Advisers.

“Rather than advertisers paying steep ad tech taxes to separate vendors, a single company could keep overall costs of service in check and still deliver healthy profit margins,” Milicevic said.

 4. Rubicon CEO Michael Barrett sits on MediaMath’s board.

AT&T advertising chief Brian Lesser sat on AppNexus’ board – and acquired the company. Michael Barrett holds a seat on MediaMath’s board. Relationships matter, and so does intimately knowing another company’s business.

5. Rubicon should go private.

Rubicon needs to be taken off the public markets, according to investor sources. It’s particularly tough to run a public company going through a turnaround. And Rubicon is tiny, attracting minimal interest from investors. All this points to a need to go private – a road traveled already by YuMe, Rocket Fuel, Sizmek, Neustar and MaxPoint.

Why MediaMath Won’t Buy Rubicon Project

1. It will buy Cognitiv instead.

Cognitiv, an AI-focused company, is tiny, affordable and would help MediaMath in AI. Plus, it works deeply with Watson Advertising, giving MediaMath a closer relationship with the tech giant.

In a way, a Cognitiv acquisition would also give MediaMath a bit of SSP DNA – founder Jeremy Fain used to work at Rubicon Project.

2. DSP-SSP combos don’t work.

MediaMath has always positioned itself as an independent DSP serving the needs of one master: marketers.

Many combinations of DSP and SSP have failed. Rubicon Project once bought a DSP, the retargeting company Chango, and ran into similar issues before shutting it down.

AppNexus consistently struggled with competitive issues when it tried to work with DSPs cautious of working with an SSP that owned a DSP as well.

Tremor Video sold its demand-side business to Taptica and refocused around its sell-side business, Telaria, last year.

But even that downside has a silver lining: MediaMath’s new investor, Searchlight, is known for making sure post-acquisition integrations run smoothly, making them better able to tackle such a challenge than another investor.

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