Why Did The Most Anticipated Taboola-Outbrain Deal Collapse After A Year?
- The two biggest content distribution giant, Taboola and Outbrain, called off a year-long engagement.
- The merger of the giants would have created a $2 billion company and could have been a ‘meaningful competition’ for the walled gardens of Facebook and Google.
- Some publishers who relied on the two firms for ad revenue expressed their concerns that the merger would suppress the competition and decrease the payouts.
- Ultimately, the merger deal ended when Taboola revised the deal offer, renegotiating the cash component from $250 that it initially offered to $100 million.
Nearly a year after announcing the biggest Ad tech merger deal between the two largest content-recommendation companies, Taboola and Outbrain have now collapsed. The merger was meant to give advertisers more ‘meaningful choices’ outside the walled gardens of Facebook and Google that influence a large part of the digital advertising ecosystem.
A Year-Long Road That Changed It All
The delay in regulator scrutiny, the pandemic hit, and changing of the market led to the termination of the deal.
Outbrain and Taboola’s products are the “recommended for you”-type article boxes that are found at the bottom of news articles and are all over the web. The publishers have earned handsomely from Fox News to CNN by renting ad space at the bottom of the publishers’ article pages.
Under the proposed deal, Taboola would acquire Outbrain for $250 million in cash and 30% equity of the combined company. CEO Adam Singolda was set to lead the combined entity with the deal valued $850 million and would have more than 2000 employees. The pair pitched the proposed union as a way to help advertisers. The pair pitched that the combination of the platforms would be beneficial for advertisers looking to buy sponsored links across the web and the new entity would increase revenue for publishers owing to increased investment in technology and product. However, between then and today, a combination of factors changed the progress of the Taboola-Outbrain deal.
Scrutiny By Regulators
The first of those was the delay in the regulatory process to approve the Taboola-Outbrain deal. The Wall Street Journal reported that the Justice Department was examining whether the merger would hurt competition raising antitrust issues and in turn, affect publishers who rely on those two companies for ad revenues. Publishers expressed their concern on the operation of the proposed entity
Though the U.S. Justice Department did not challenge the deal, the merger was still being investigated both in the U.K. and Israel. The U.K.’s Competition and Market Authority(CMA) after initial probing, proposed a “phase two investigation” this summer. According to CMA, Taboola and Outbrain have a combined market share of 80% in the U.K. content recommendation market. The regulators raised concerns for U.K publishers who would have a reduced choice in content recommendation services which could result in a drop in ad revenue. The Israel Competition Authority’s investigation was also outstanding. Israeli business newspaper Globes reported that ICA launched an investigation on a Taboola client, local news site Ynet, over alleged coordination between Taboola and Outbrain before the merger was approved. CEO Singolda reaffirmed that they will come out clean of the investigation.
As reported by Adweek, sources familiar with both sides of the deal said the competition regulators investigation took much longer than expected and the developments brought pressure on the financing. The financing deal with the participating banks expired in August.
Renegotiation Of The Taboola-Outbrain Deal, But Why
The pandemic hit and temporarily affected their ad revenue like many other ad tech companies.
In a June 29 blog post, Taboola CEO Adam Singolda wrote, “We’ve had to ask our publisher partners to work with us through these challenging times by temporarily switching from a revenue guarantee to shared revenue.”
Though Taboola described it as a temporary pause, this caused tension with Outbrain which didn’t refrain from its existing guaranteed deals, as per Digiday. As a result, in July, Taboola’s biggest clients with more than 139 million unique visitors in July as reported by ComScore left for Verizon Media’s native advertising product.
All this transpired for the breakdown of the merger deal. CEO Singolda wrote in the blog post that Outbrain agreed to be acquired by Taboola in October of 2019 but the agreement had an expiration after 12 months giving both parties a way to part ways. He further added,
“As part of the process, we exchanged financial information with each other. Based on the relative performance of the two companies, we decided the original deal does not make sense anymore. We could choose to pay the same price of 30% in equity + $250M, but our shareholders thought it’s too much for what we would get based on the relative contribution of the two companies. Nothing emotional, not about culture fit, just data.”
“Out of deep respect, we tried to do a deal that was equity only (but less equity), or equity and cash (but less cash) that matched Outbrain’s financial contribution to Taboola. We failed, and we called it off.”
It is believed that Raboola renegotiated the earlier agreed-upon fee of $250 million to approximately $100 million which was unacceptable by Outbrain. According to Digiday, a memo to Taboola staff by CEO Adam Singloda stated that
“While we continue to grow and do better than ever since the merger announcement, Outbrain’s business continues to stagnate and in fact trend downward.”
He also said that Outbrain remains underinvested in their company over the last two years and this finding also led to revising the original deal agreements.
On this, Outbrain co-CEO Yaron Galai replied to Digiday that the deal got terminated because Taboola didn’t carry out the original deal. He further added,
“Outbrain is profitable, hitting all of its key metrics, and experiencing strong [year-on-year] growth. Importantly, Outbrain’s profits are achieved in alignment with our publisher partners, while standing by all of our commitments to them.”
Many publishers were skeptical when the proposed merger deal was announced but now breathe a sigh of relief. However, the sudden decreases in ad spending as the Covid-19 pandemic hit harshly, the not new but the old two competitors Taboola and Outbrain altered their priorities. Publishers pursued a more subscription-based model for healthy margins and making revenue forecasting more sustainable.
In the post-Covid landscape, Taboola and Outbrain are now moving to reinstate some of the past guaranteed deals. Taboola for its part is also eyeing commerce and TV advertising and CEO Adam Singolda said that they will send more traffic to publishers from other devices than Google sends.