Telstra, Australia’s largest telecommunications provider, has paid $270m to purchase 75% of online video platform provider Ooyala. When the deal closes, Telstra will own 98% of Ooyala.
Telstra previously invested $61m over two funding rounds to acquire 23% of Ooyala. In June 2012, Telstra participated in a $35m fundraising round. In December 2013, Telstra invested an additional $43m in Ooyala.
The deal values Ooyala at $360m, which slightly overstates the cash price incurred by Telstra since its actual cash outlay was $331 million ($270m + $61m).
$360m is a strong valuation for Ooyala, which has 330 employees and is forecasting revenue of $65m for calendar year 2014. It’s also a strong valuation in the context of an analogous public comparable Brightcove, which trades on the NASDAQ.
Brightcove’s stock presently trades at an equity value of approximately $200 million, though Brightcove is meaningfully larger than Ooyala on a revenue basis. Assuming similar gross margins as Brightcove, these data points would suggest Ooyala has yet to reach profitability. However, it would appear prioritizing growth over profitability was a beneficial strategy since the implied revenue multiple is 5.5x and the cash-on-cash return to investors was approximately 4.4x (as detailed below).
Ooyala was founded in 2007 and raised approximately $122 million before the acquisition by Telstra. $61 million of this amount was from Telstra itself; the remaining $61 million included participation from Ropart Asset Management, Amazon Web Services, Sierra Ventures, Rembrandt Venture Partners, The CID Group, ITOCHU Technology Ventures, Motorola Mobility Ventures, and EDB Investments Pte. Ltd.
Ooyala is the first investment by Telstra’s Global Applications & Platforms group, whose mission is to create “long-term global growth in markets that are adjacent to Telstra’s core business, where software disrupts traditional business models.”
In announcing the transaction, Ooyala’s CEO Jay Fulcher posted an open letter to Ooyala employees, which enthusiastically outlines the rationale for the transaction and discussed the future market opportunity. “Our opportunity is enormous” said Fulcher. “The market for the technologies and services we provide is will be [sic] worth tens of billions in the next few years. To win requires a heavy investment in people, infrastructure, R&D and technology.”
The transaction will require US regulatory approval, though is expected to close within 60 days.
Ooyala will operate as an independent subsidiary of Telstra, retaining both its brand and management team.
In 2013, Telstra generated more than $AUD 26 billion in revenue.
Press Release: Telstra to acquire leading video platform company Ooyala
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