Israeli Mobile App Firm Buys U.S. Digital Ad Firm for $180m

Perion Network’s shares rise 5.9% on news of purchase of Undertone

Ofer Vaknin

Perion Network, the Holon-based mobile app and Web software firm, is purchasing an American digital advertising firm, Undertone, for $180 million.

Undertone, which is headquartered in New York City, specializes in the creative side of digital advertising as well as developing advertising technology for mobile devices and desktop computers. The company, founded in 2001, has a staff of 275, including a development team based in the Tel Aviv suburb of Ramat Gan.

Shares of Perion rose 5.9% to 9.29 shekels ($2.39) on the Tel Aviv Stock Exchange Tuesday on the news of the acquisition. The transaction includes a $10 million investment in Perion by the U.S. investment bank J.P. Morgan. Bank Leumi subsidiaries will be providing Perion with $20 million in credit.

Undertone develops special advertising formats for leading brands including Coca-Cola and BMW on content websites, but the ads do not appear as banners – the strips appear separately on the Web page. Perion is understood to be interested in taking advantage of the contacts that Undertone has with advertisers and content websites and to get them involved in its own efforts at developing technology.

Over the first nine months of this year, Undertone had revenues of $104 million and the company expects to finish the year with $143 million to $145 million in revenues. In the nine months from January through September, the New York company had adjusted earnings before interest, taxes, depreciation and amortization of $14.6 million, which is expected to rise to $21 million to $23 million for the year as a whole.

Originally Perion was involved in aspects of the Internet search engine business, for example enabling advertisers to generate revenue by linking software to search engines, but the company, like similar firms, began to face stiff competition from giants such as Yahoo and Microsoft. Last year, Perion made the strategic decision to focus on advertising on mobile devices such as smart phones and tablet computers. The shifting challenges to the business are reflected in a sharp drop in the company’s revenues, from $153 million in third-quarter revenues last year to $52 million in the same quarter this year. Perion’s difficulties have also reflected on its bottom line, with net profits slumping by 78% to $6.7 million in the quarter.

About 85% of Perion’s revenue still comes from its prior business focus, but its mobile ad business is growing. The company admits it expects to lose $10 million on mobile ads this year because of the heavy investment it is making in the sector. Several months ago, the company purchased MakeMeReach, which has developed technology allowing mobile app developers to run ad campaigns on social networks.