Mobile marketing tech firm AppLovin announced today it has agreed to sell a majority stake to private equity firm Orient Hontai Capital, marking the most recent in a series of tech buyouts by Chinese companies.
What makes this deal noteworthy is the price tag — an estimated $1.42 billion. Not bad for a company that only tapped the markets for a $4 million round of angel funding before it moved into profitability within its first month of operation.
China's Interest in Ad Tech
There have been a slew of acquisitions of ad tech start ups by private equity coming out of China. Ad tech startup Media.net traded for $900 million in cash last month to a consortium being led by Zhiyong Zhang, chairman of Beijing Miteno Communication Technology.
Other examples include the Beijing-based Spearhead Integrated Marketing Communication Group's $148 million bid in June to acquire San Francisco-based Smaato, a real-time advertising platform for mobile publishers and app developers. Also, earlier this year Guangzhou-based Mobvista acquired the Minneapolis-based NativeX for $25 million.
The reason for the influx is obvious: Chinese investors are seeking to place money in foreign investments not only for the returns they can earn but also to escape the country's troubled economic and foreign exchange markets. Indeed, private equity from China can be found in just about every global sector of note, from residential and commercial real estate, to huge infrastructure projects, to the tech industry.
In the case of ad technology, private equity — both foreign and domestic — is drawn to the returns it can deliver.
A report earlier this year by AccuStream Research dissected the gains to be had from this tech sector. While most of the report (pdf) is available only behind a paywall, the executive summary concluded that the global ad technology sector is worth $11.7 billion, or the equivalent of $22 plus billion in potential mergers and acquisitions, based on deals from 2006 through 2015.
How AppLovin Became A Valuable Prize
Mobile ad tech companies in particular are highly sought after, as the San Francisco-based AppLovin deal shows.
"This level of investment validates the outstanding product we’ve built. What's more, is the profound significance for the entire advertising industry given this is the most sizable outcome for a mobile advertising company ever," said AppLovin co-founder and CEO Adam Foroughi.
AppLovin was founded in 2011 by Foroughi, Andrew Karam and John Krystynak.
From the start, the company avoided the venture capital funding route, raising a mere $4 million in angel investment from such investors as Eduardo Vivas of Bright.com and LinkedIn, John Burbank of Passport Capital and Webb Investment Network, the early stage fund founded by Maynard Webb, who is a board member at Salesforce, Visa and Everwise.
It became profitable by the end of its first month in operation, according to Fortune.
"AppLovin is the clear leader in mobile marketing automation and consistently delivers outstanding results for their customers," said Tony Ma, CEO of Orient Hontai. "As the mobile market grows, AppLovin is well-positioned to herald new innovations and a standard of excellence," he added.
The transaction is subject to regulatory approval, and is expected to close in the fourth quarter of 2016.
AppLovin will continue to operate from its corporate headquarters in Palo Alto and retain its team of approximately 100 employees.