Inside the $540 million TubeMogul acquisition by Adobe

Inside the $540 million TubeMogul acquisition by Adobe

Lessons learned from a half-billion dollar tech acquisition.

Earlier this month, it was announced that advertising technology firm TubeMogul would be acquired by Adobe for $540 million in cash tender offer. We were lucky enough to chat with one of the engineers at TubeMogul and get an employee’s perspective on what it’s like to go through the process of being acquired. But before getting to that, it’s best to know some background on the deal itself and, by doing so, catch a glimpse of the sales and negotiations processes that took place.

From the related SEC Filings, we can glean that TubeMogul’s board of directors had been looking into a potential sale of the company since at least November 2015 as a way of unlocking and maximizing shareholder value. Over the next several months, the senior executive team proceeded to network with other tech executives, sussing out potential suitors for the company. Towards the end of June 2016, TubeMogul’s management approached Morgan Stanley for strategic alternatives and, by mid-August, Morgan Stanley’s banking team had come up with a list of potential buyers, completed various valuation frameworks, and a corporate sale timeline.

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At this point, TubeMogul formally retained Morgan Stanley as an advisor and the process of finding the right acquirer began. No fewer than 16 possible buyers were contacted, though not all of these moved forward in a significant way – in fact, in addition to Adobe, 4 additional potential buyers (noted only as Parties A-D) were in the running to complete the transaction. These 4 unnamed buyers are listed as being a Portfolio company, Media company, Foreign Telecom company, and a Social Media company, some of whom were contacted by Morgan Stanley on TubeMogul’s behalf, others who actively sought out the acquisition team themselves, setting the stage up for a very competitive bidding process. A bit ironically, management at Adobe and TubeMogul met by chance at a social gathering and informally discussed a potential sale of TubeMogul in late August, sparking conversations of a strategic relationship between the two. Later, however, after less formal discussions had taken place, Morgan Stanley approached Adobe with the official news of TubeMogul’s potential sale. Nonetheless, the value of soft skills like networking and maintaining visibility clearly shines through here and cannot be stressed enough in these kinds of situations.

TubeMogul CEO, Brett Wilson rings open bell on July 18 2014, the first day they were publicly traded on the Nasdaq.
TubeMogul CEO, Brett Wilson rings open bell on July 18 2014, the first day they were publicly traded on the Nasdaq.

Somewhat coincidentally, management at Adobe and TubeMogul met by chance at a social gathering and informally discussed a potential sale of TubeMogul in late August, sparking conversations of a strategic relationship between the two. Later, however, after less formal discussions had taken place, Morgan Stanley approached Adobe with the official news of TubeMogul’s potential sale. Nonetheless, the value of soft skills like networking and maintaining visibility clearly shines through here and cannot be stressed enough in these kinds of situations.

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The overall bidding process took approximately two months, with some potential buyers bowing out, due to the aggressive bids of others, or being unable to meet the accelerated timeline. This is definitely something to note for those looking to sell their companies, as you have to balance the risks of dragging out the process too long and letting your retainer fee bill grow against pushing too aggressively for a quickly signed deal and leaving money on the negotiating table. As negotiations began to wrap up, Adobe enlisted the advisory services of PwC for due diligence, the $14.00/share price was settled upon, TubeMogul’s board approved the sale, and the deal was brought before shareholders before being sealed.

As mentioned earlier, one of the engineers at TubeMogul took the time to speak with us regarding their experience going through the merger as an employee. Oftentimes, people focus on management, the price tag, and other deal-oriented details that the effects of a corporate sale on other stakeholders can be overlooked, so this affords us an opportunity to see the acquisition from a novel perspective.

The DealRoom (DR): How did you hear about the deal? Were there murmurs in the company beforehand about a buyer or were you taken by surprise?

TubeMogul Engineer (TE): Most people found out by the public press releases but we also had a company-wide meeting the same day those were released to discuss the deal. Since the announcement, our execs have been very good at holding regular meetings to keep us updated on progress and answer any questions we may have.

It’s critical that early stage deals be kept confidential. The potential for abuse in the case of a company being acquired is very high, and insider trading is a serious offense. Even an accusation of leaking information in a deal process can be a significant blemish on an otherwise promising career. Beyond reputation, the executive team is legally obliged to keep this information secret. Proper steps to maintain secrecy in a deal process is essential.

TDR: For TubeMogul, what were the largest concerns during the acquisition process?

TE: From what I was told one of the biggest factors was finding someone we would be a good fit for us – a company with whom we had the same values, both in and outside professional contexts, and a similar culture reflected in the workplace.

This is a very good thing to be focused on – mergers without a good cultural fit tend to add even more friction to an already stressful situation. Management at companies being acquired are often concerned about their legacy, hoping to ensure their hard work doesn’t go to waste once the transaction is complete. Control is also often important, especially in situations like this where the buyer is considerably larger than the seller – teams used to being able to exercise considerable freedoms may find large companies much more restrictive than they’re used to.

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TDR: This deal was a cash offer. Shareholders essentially sold their shares in TubeMogul at the new sale price value. This would have had an effect for taxation in the form of capital gains. But, what about shares that haven’t been vested already? What are the tax implications you’ve had to consider for the sale?

TE: Haha I’ve only really considered the tax implications for my vested stock since we are still uncertain on the unvested. But it was something I considered and wasn’t a large concern personally. I know other questions have been brought up and I believe our execs wanted to bring in a professional that people could ask.

TDR: How is your unvested stock being handled?

TE: While it’s not legally required, the terms of this deal indicate that our unvested stock is going to be paid out if the deal goes through and closes. We are still not completely sure on how unvested stock will be handled, but the last I heard is that they will be converted to unvested Adobe RSUs (based on monetary value) and vest according to the same schedule we were originally given at TubeMogul.

DR: Sounds like the company has done a good job of keeping things easy for you. Would you say they’ve handled it well?

TE: For sure, I think it has been well handled, and they continue to address and answer our biggest concerns. Understandably, it is hard to answer everything because the deal hasn’t closed, but they have been very transparent with every question they can, as well as being clear with respect to what they can/can’t answer.

TDR: On that note, do you know what your job be like, post-deal? Will your responsibilities or direction change? Are there any concerns about redundancies causing layoffs?

TE: So far, everyone is continuing with the same responsibilities and direction we are currently in. Adobe has said they want to help us achieve our goals, so we aren’t aware of any changes. Since our platform is technology Adobe doesn’t have yet, we aren’t anticipating redundancies or layoffs.

TDR: This is your second time being acquired (congrats!) – how has this process differed from the first one you underwent?

TE: [Laughs] Thanks! So far, this one is very different. In the first acquisition, we already had a branded version of our product for the company who acquired us, so they did have staff knowledgeable of it and it was more of a traditional merger between companies. Also, I found that the cultures were very different so it perhaps wasn’t as smooth a transition as would’ve been ideal; there were growing pains for years afterward, and not everyone from the original company stayed on. While I know we haven’t reached the same point in the deal yet this go around, it is a brand new technology for Adobe, and we are told the cultural fit is very strong. We have had Adobe representatives in to visit and chat with us regarding the acquisition, which has been a great help for easing these concerns. I also feel that TubeMogul has been much more transparent about the details and process than my last company was, and also that they are very focused on making it a smooth, seamless transition for everyone involved. So, I feel they’re very different, but we are in the early stages of the acquisition so I can’t say for sure yet, but it seems to be going better.

TDR: You seem really happy to be working at TubeMogul. Do you have any concerns going forward regarding enjoying your work?

TE: I am very happy at TubeMogul, but, admittedly, a little hesitant because I didn’t feel the last acquisition went exceptionally well for me. However, because it does feel so different and I know how important culture is to our CEO, I have a much more positive outlook.

From this discussion, it seems that TubeMogul is not only selling the deal to Adobe, but selling it to their employees, as well. This is important because, while employee buy-in isn’t necessarily required to sell a company, it is absolutely crucial for a smooth transition over the long term. Making sure your workers feel valued, respected, and taken care of during the process will ensure they, in turn, take care of your company’s legacy and improve the chances of the deal successfully closing.

Further, while dealmakers have to be certain to keep information regarding an acquisition on a need-to-know basis, both for ethical and legal reasons, once the details have become public, sharing information with the employees of the company being bought is a wise move, and not only for the aforementioned reasons. The world is a surprisingly small place, and you are likely to run into people in your industry again; as such, garnering a reputation as someone who doesn’t take care of all the stakeholders in a deal like this can put a crimp in any future plans you may have to repeat your past successes.

We’ve also seen how important soft skills can be, especially networking. After all, TubeMogul’s CEO met his Adobe counterpart at a social function, laying the groundwork for the deal as a whole. This wasn’t purely serendipity as the board of directors, as noted in the filings, actively pursued a strategy of networking to find a buyer. Despite the fact that most people think of spreadsheets and valuation techniques when they think of M&A, this really highlights how crucial interpersonal skills are in this field.

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It’s also essential to note that these things can take time. While TubeMogul’s deal went through relatively quickly after Morgan Stanley had compiled a buyers list in mid-August, this was an admittedly accelerated timeline and two serious bidders dropped out because of this. Beyond this, though, the strategic direction of selling the company had been decided on by the board a full year before the deal was signed. This comes back, in part, to the importance of soft skills – you can work all night to complete a model of a company, but you can’t rush networking.

Clearly, any kind of merger or acquisition is a lengthy and complicated process, with many moving parts to be considered. From the filings and pursuant discussion with an employee at the company, it sounds like TubeMogul’s sale was well thought out and considered, with a high-quality execution coming from both sides of the negotiation table. They’ve navigated the tricky waters of networking, a bidding process, and proper communication and is well on its way to succeeding.