AppNexus, Google and Facebook's biggest rival in ad tech, is talking to Goldman Sachs as it considers an IPO
One of the banks AppNexus has met is Goldman Sachs, those people told Business Insider, although the company has yet to officially appoint any of the investment banks it has been meeting with.
An AppNexus spokesman told Business Insider: "We have not retained Goldman or any other investment bank."AppNexus has long been a potential IPO target. The company was founded in 2007 and has raised $288 million in funding. It employs more than 900 people across 23 offices and operates an online ad platform that handles around $2 billion in ad spend, which gives it the biggest ad reach on the open internet after Google (AppNexus also has access to Google inventory and all the other major open sources of display advertising such as the Facebook Exchange and Rubicon Project.) AppNexus also recently launched a suite for publishers, giving it a "full-stack solution" for both the buyers and sellers of online advertising.
AppNexus said it closed 2014 with a net revenue run rate "in excess of $250 million on an annualized basis" and "record profitability." The company has previously been valued at $1.2 billion.
AppNexus positions itself to marketers, media buyers, and most recently publishers as the alternative to Google's DoubleClick ad tech platforms (although the majority of marketers and buyers partner with both companies.) AppNexus's other biggest rival in the space is Facebook, with its Atlas ad-serving and measurement platform.
One ad tech company CEO told Business Insider AppNexus would need to start preparing to go public this spring as it will want to show its Q4 as revenue guidance to get the highest valuation.
A rocky ride on the public markets for ad tech companies
On paper, AppNexus seems like an ideal IPO candidate. But its founders have been wary of jumping on the public markets and that concern is unlikely to have abated recently.
The share prices of publicly-traded ad tech companies collectively plunged 35% in the third quarter of this year, according to market data collected by investment bank LUMA Partners.LUMA Partners said underwhelming earnings and lowered future guidance sparked the dramatic sell-off. Meanwhile concerns about ad blocking are starting to weigh on ad tech companies, the investment bank suggested.
AppNexus' scale, as one of the few ad tech unicorns, may help it weather issues like these and the ad tech markets better than others. AppNexus CEO Brian O'Kelley said earlier this year that it was the company's "scale and mandate to solve a challenge" that helped it tackle the amount of ad fraud on its platform earlier this year - an issue the whole industry is facing. The company had previously admitted that about 40% of its traffic was non-human or broke another of its anti-fraud policies.
Could AppNexus be looking for a buyer instead?
Another option for AppNexus is to search for a buyer. However, ad tech executives told Business Insider AppNexus would be seeking a price of between $2 billion and $3 billion, leaving few companies the ability to afford the ad tech firm.
With AppNexus' aggressive push against Facebook and Google - and the likely competition concerns were either company to purchase it - that only reasonably leaves the likes of enterprise software companies like Salesforce, IBM, Adobe, and Oracle, which are all increasingly moving into the areas of ad tech and martech via a number of acquisitions. Or perhaps telecoms companies, as signaled by Verizon's acquisition of AOL earlier this year.
Still, the idea of AppNexus searching for a buyer is not out of the question. Not least, as previously mentioned, due to how its peers have fared on the public markets.
AppNexus's president Michael Rubenstein told The Drum earlier this month that 2015 "was the warm-up act for the next round of the ad tech power game," with two factors driving the arms race:
Firstly, the cycle of independent ad tech companies is playing out. You had all these companies funded in 2007/08, and some of them emerged as strong companies, but lots are not working very well. The latter can't survive independently, and so I've got the feeling that a lot of those companies will have to find ways to survive or they'll go out of business.Secondly, the internet's major players are continuing to believe that ad tech is one of the continuing new drivers for growth, and since we saw Verizon jump into the game in 2015 [with the $4.4bn purchase of AOL], we'll see many other large players will come into the game. And that's not just telcos, that's enterprise [software] companies, or it could be the other Silicon Valley majors.
This is the environment AppNexus, as an independent, is currently up against. So it makes sense that its executives are seeking options to take the company to its next stage.
If a buyer does come forward for AppNexus, it'll probably be considered as a jewel in the crown for its new owner. AppNexus is a highly-respected partner among the advertising agency world. So much so that WPP, the world's largest advertising agency holding group, invested $25 million in the business last year.
WPP chief Sir Martin Sorrell said last year that the deal left rival agency holding groups with "nowhere to go" because there is "no other agnostic platform" between Google's DoubleClick and Facebook's Atlas in the market.
But Jonathan Beeston, UK managing director of digital performance agency Croud, says while AppNexus' next move will be "interesting to watch," he might be doing so from "behind the sofa."
He told us: "Google and Facebook are crushing everything around them. Although both say they're not building walled gardens, it's hard to imagine them becoming truly open stacks either. AppNexus provides an alternative, but without the unique data assets and inventory access that the Big Two have. AppNexus is stuck between a rock and a hard place."
Beeston said its deal with WPP might have made its relationships difficult with competing global ad agency networks (AppNexus denies this,). The likes of IBM and Oracle "haven't shown much appetite to get really involved in media buying," he said, so failing a wild card, Verizon-like buyer, an IPO may be the only choice.