Exclusive: Israeli Startup Outbrain Eyes Going Public With $2 Billion IPO

Israeli online content-recommendation firm Outbrain is looking to go public months after ‘merger of the year’ with rival Taboola fell apart

Omri Zerachovitz
Omri Zerachovitz
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Outbrain's David Kostman (L) and Yaron Galai (R), November 15, 2017.
Outbrain's David Kostman (L) and Yaron Galai (R), November 15, 2017.Credit: Noam Galai
Omri Zerachovitz
Omri Zerachovitz

The Israeli online content-recommendation firm Outbrain has taken initial steps towards an initial public offering, Haaretz has learned. The Israeli startup that enables web publishers to recommend content from other websites is eyeing a $2 billion evaluation and has hired investment banks Citi and Jefferies to see the process through.

Outbrain did not respond to comment for this story. The decision to go public comes three months after Outbrain's merger with its biggest competitor - the Israeli content-recommendation company Taboola - fell apart. The IPO will help provide Outbrain’s stakeholders with some of the liquidity they would have received as part of the merger, which also included capital.

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Outbrain is estimated to have hit roughly one billion dollars in revenues this year.

Last week, Haaretz revealed exclusively that Taboola will very likely go public soon, as part of a merger with ION’s special purpose acquisition company (SPAC). ION SPAC is a public shell company that raised $259 million to find and merge with a private firm.

Industry sources say Outbrain received a number of offers to merge with different SPACs, but no real talks were ever held. However, many believe that companies like Outbrain that opt for the regular IPO route may actually end up going public via a merger with a SPAC. The reason is the vast sums of capital being put into SPACs and the attractive offers that can be made to private companies as a result.

Twice in recent years it was reported that Outbrain was planning on going public. The company has even filed initial paperwork but has never seen the process though and taken the final steps. It is believed that this time may be different as Outbrain’s sector has enjoyed massive growth this year. The high market prices will allow them to offer their shares according to their price-earnings ratio, as long as the window from an IPO does not close during the coming months.

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Formed in 2006 by Yaron Galai, one of the founders of Quigo, a startup sold to AOL in 2007, and Ori Lahav, formerly of Shopping.com, Outbrain’s technology is used by websites to recommend other content and links the reader might find interesting, the idea being to keep readers on the site and increase traffic. The company allows advertisers to distribute marketing content alongside the recommendations, and has deals with leading publishers - including USA Today, the Washington Post, Slate, CNN and Fox News.

Outbrain is currently run by Galai and David Kostman, who serve as co-CEOs.

Outbrain's 'native display'Credit: Courtesy

Together with Taboola, Outbrain is a leading player in the lucrative branch of online advertising called “native display” that integrates paid ads with editorial content. Its recommendations are a familiar feature at the bottom of online articles tagged as “from the web” or “you may be interested.”

Both companies have developed algorithms that gather and analyze users’ online preferences to suggest editorial content that matches their interests. The content-recommendation services get paid per click they generate for articles. The revenues are split between the publishers (usually about 60 percent), the hosting website, and content-recommendation services, like Taboola and Outbrain (about 15-20 percent).

Taboola CEO Adam Singolda posing in front of his company's logo, August 11, 2015Credit: David Pexton

In September, the deal between Taboola and Outbrain - labeled Israeli high-tech’s merger of the year - fell apart. Under the terms of the original deal, Taboola was to acquire Outbrain for $250 million in cash, and Outbrain stockholders were to retain 30 percent of the newly formed company. The merged company was to retain the Taboola branding and was supposed to be headed by Adam Singolda, it’s current CEO.

At the time, sources said Taboola had sought to reopen the original deal and reduce the amount of cash they were expected to hand over. “2020 turned out to be an excellent year for Taboola, better than its last three years combined. The two companies show positive earnings, but Taboola makes in a month and a half what Outbrain makes in a full year,” a source said.

After the deal fell apart, Singolda wrote in a blog post that, “the conditions of the deal no longer made sense. We could have paid the amount but our stockholders thought it was too high.”

Buoyed by the traffic surge of the coronavirus and free from their agreement, the two quickly returned to the fierce competition that had characterized the pre-merger period. Gilai even voiced indirect criticism of Taboola, writing in a blog post of his own that: “We did not use COVID-19 as an excuse to unilaterally change our commitments. We actually went out of our way to dedicate resources to our partners who are facing existential challenges.”

The IPO market began heating up several months ago amid growing optimism about the prospects of high-tech companies in the post-coronavirus era. Two Israeli companies – JFrog and Lemonade – have gone public in recent months.

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