In an all-cash swoop that has shocked the tech industry, US telecoms group Verizon has snapped up online media giant AOL for $4.4 billion.
The deal sees the passing of $300 million in debt over to Verizon, in addition to AOL-owned properties such as the Huffington Post and TechCrunch news sites.
AOL CEO Tim Armstrong, who since arriving in 2009 has helped transform the business into an ad tech behemoth, is expected to lead the company post-sale.
He told CNBC there was “no better partner” for AOL than Verizon, one of the largest broadband and telecommunications suppliers in the US.
Ad growth improves
Following the catastrophes that came from a $350 billion merger with Time Warner in 2000, widely considered the worst link-up in business history, AOL has built itself back up thanks to the launch of cutting-edge ad services and the success of its publications.
Earlier this month, the company recorded advertising revenue of $483.5 million for Q1 as a strong demand for its programmatic platform caused a 12% rise in takings from the division.
Nearly half of the company’s global ad revenue (45%) is generated by its programmatic business, which includes revenue from third-party websites using the company’s platform.
But this has marked the early beginnings of something that could be much bigger for AOL. With eMarketer forecasting $10 billion to be spent on programmatic advertising in the US alone, the company is poised to benefit from further increases in spend from marketers buying inventory – in real time – across properties owned and connected to AOL.
In addition, AOL has launched its ‘One’ advertising platform – an end-to-end solution which aims to simplify the buying of inventory with optimisation capabilities.
Pricing out
Little is known of AOL’s immediate plans following today’s (May 12) acquisition, but a leap in its share price indicates that Verizon is looking for early success.
The media group is valued at $50 a unit, marking a 17.4% increase on Monday’s close of $42.59. This also represents a 23% increase in AOL’s average share price during the last three months.
As for Verizon, analysts believe AOL and the flood of video content from Huffington Post and its other publications may help the company build an internet-based TV service, to be packaged with their broadband connection.
Commentators have highlighted that AOL’s Armstrong has been looking to build a similar service at his company for years, and may now have the finances and expertise to do so.
The deal is expected to be completed this summer.