Colorado Online Video Advertising Startup SpotXchange Sold for $144M

8/1/14Follow @MichaelXBD

Companies like Facebook and AOL and advertisers are confident that video ads will be a big part of online advertising, and the latest startup to benefit with an outsized exit is SpotXchange, a startup based outside of Denver.

RTL Group, a major European media company, announced Thursday it will buy a majority stake in online-ad startup SpotXchange for at least $144 million.

SpotXchange is an online advertising marketplace that focuses exclusively on selling video ads. Digital publishers including the Atlantic and Hearst Corporation use SpotXchange to sell ads in real-time auctions to advertisers looking to make video a part of their online marketing efforts. Real-time bidding is a type of programmatic advertising, which is the automated buying and selling of digital ads. SpotXchange says it conducts more than one billion auctions a day and delivers ads to 335 million people in more than 100 countries per month.

(Here are two primers on programmatic advertising from Ad Age and AdExchanger.)

RTL Group will get 65 percent of SpotXchange, and the deal gives it the option to acquire the rest of SpotXchange in the future, the companies said in a release. Current SpotXchange shareholders could get more money if the company exceeds performance goals. The deal values SpotXchange at about $221.5 million.

That’s a huge return for SpotXchange’s small number of investors. The largest is H.I.G. Growth Partners, which invested $12 million in the company in 2010. SpotXchange also raised a $1.4 million round in 2008, according to SEC filings.

SpotXchange was founded in 2007 and is headquartered in Westminster, CO, a suburb of Denver. It has 180 employees and offices in San Francisco, New York City, London, and Sydney.  

While RTL Group will get to appoint three of SpotXchange’s five directors, the deal will allow SpotXchange to retain most of its autonomy. SpotXchange co-founders Mike Shehan, the CEO, and Steve Swoboda, the chief operating and finance officer, will remain with the company and manage its operations, the release said.

Shehan wrote in a post on the SpotXchange blog that the deal allows his company to keep its team together and control its destiny while greatly expanding its reach and potential for growth.

“RTL Group companies operate in a decentralized fashion, which will enable SpotXchange to operate independently. This was an important consideration as we weighed our strategic options. The entire SpotXchange team will remain in place…” Shehan said. “I would say it’s almost business as usual. The only difference being that we have just poured gasoline on the fire and expect to accelerate our global growth even more.”

In particular, the deal will help SpotXchange’s growth in Europe, Shehan wrote. RTL Group is Europe’s largest broadcaster and has stakes in 53 television networks and 27 radio stations. It employs more than 10,000 people and $8 billion in revenue. The company is based in Luxembourg, and German media conglomerate Bertelesmann owns 75 percent of the company.

In addition to the networks, RTL Group’s production company, Fremantle Media, produces American Idol, America’s Got Talent, and the X Factor.

Shehan’s blog post said the deal makes RTL Group “the first major broadcaster and content producer to invest in programmatic video advertising.” That part of the online ad industry has become very hot, with tech and media companies snapping up startups.

Facebook reportedly spent $500 million in July to acquire LiveRail, and last year AOL spent $405 million to buy Adap.TV. According to a presentation from RTL Group that accompanied its announcement, Adap.TV was the number one company in programmatic video advertising, while LiveRail was number two. SpotXchange ranks fourth, behind Google. The rankings are from comScore’s first-quarter report of monthly ad views in the U.S.

The reason for the big price tags is the growth of online video advertising. RTL Group said the global market was $8.1 billion in 2013, with $2.7 billion of that being programmatic advertising. That market is expected to more than triple in 2018, to $24.8 billion, and $15.4 billion will be spent buying programmatic ads.

The SpotXchange deal is expected to close in August and is subject to regulatory approval.

Michael Davidson is the editor of Xconomy Boulder/Denver. He covers startups, venture capital, clean tech, energy, aerospace, telecoms, and whatever else happens above 5,280 feet. Contact him at mdavidson@xconomy.com. Follow @MichaelXBD

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