Sizmek acquired fellow marketing and advertising technology provider Rocket Fuel for $145 million today, well shy of the Redwood City, Calif.-based company's peak valuation of $2 billion.

Rocket Fuel now joins Sizmek in the ranks of formerly publicly-traded companies. Each has struggled in the past with profitability — but more on that in a bit.

Private equity firm Vector Capital acquired Sizmek for $122 million in 2016. Sizmek's valuation has gone through its own fair share of fluctuations, dropping from $150 million to $74 million between 2015 and 2016, only to bounce back to $109 million following its acquisition. 

'The Next Logical Step in Marketing Automation'

Officials said the merger will create a marketing platform that brings together AI-powered predictive analytics, dynamic creative and media optimization to drive true campaign performance. 

Specifically, it will combine Rocket Fuel’s AI-powered, predictive marketing software, Demand-Side Platform (DSP) and Data Management Platform (DMP) with Sizmek’s Dynamic Creative Optimization (DCO) and Software-as-a-Service (SaaS) capabilities. It's a combination that marks "the next logical step in marketing automation," officials said.

Combined, the two companies connect more than 20,000 advertisers and 3,600 agencies to audiences in more than 70 countries.

“The acquisition of Rocket Fuel brings omni-channel creativity and AI-enabled decisioning together under one roof, providing our clients with a self-service predictive marketing platform that optimizes campaigns across the entire media plan,” Mark Grether, executive chairman of Sizmek, said in a statement. “This is the next logical step in marketing automation — media optimization and full creative optimization combined, bringing together the context and the creative for the optimal consumer experience. The result is advertising that is deeply personalized, highly intuitive, and AI-enabled for peak performance, redefining the boundaries of creative possibility and media execution.”  

Randy Wootton, CEO of Rocket Fuel, said the union "creates one integrated, full-funnel solution to enable agencies and their brands address key performance objectives across paid, owned and earned media."

Each company made the Gartner Magic Quadrant for Digital Marketing Hubs in 2016 but were dropped this year.

Rocket Fuel Challenges 

The acquisition is certainly a bittersweet coda for Rocket Fuel, once named one of AdTech's hottest IPO's of 2013

Rocket Fuel initially had no problems growing revenue. It hit $106.6 million in 2012, reaching a $1.8 billion market cap in 2013. The following years saw it continue to make gains and in its 2016 annual report the company brought in $456.3 million in revenues. 

However, this was tarnished by a net loss of $65.7 million, which followed losses of $210.5 million and $64.3 million in 2015 and 2014, respectively. Its workforce shrunk to 851 as of Dec. 31, 2016, down from 954 a year earlier. It reported 11 percent layoffs early this year.

Rocket Fuel's now predicting losses of $3 to $4 million for its second quarter earnings due to be announced next month.

Learning Opportunities

"We have experienced a slowing rate of revenue growth and our revenue will continue to suffer if we do not improve our capabilities to attract key former and potential customers, retain our customers and sell more solutions to these customers," Rocket Fuel officials said in the company's 2016 annual report filed with the United States Securities and Exchange Commission (SEC). "... We may not achieve profitability in the foreseeable future, if at all." 

In its report to the SEC, Rocket Fuel officials stated the company competes for allocation of advertising budgets with agencies that may prefer to allocate their clients' advertising spend to their own internal agency trading desks or other solutions.

Sizmek Losses

Austin, Texas-based Sizmek has had its fair share of losses, reporting 2015 yearly revenues at $172.7 million with a net loss of $136.9 million, which followed three years of net losses.  

Sizmek officials reported in its 2015 annual report to the SEC that competitors had established cooperative relationships among themselves or with third parties, and several competitors have combined or may combine in the future with larger companies with "greater resources than ours." 

"We cannot assure you that we will be able to compete successfully with our existing or future competitors," Sizmek officials said.

Sizmek's main competition in the ad management and ad serving category are DoubleClick (which Google acquired in March 2008), Atlas (which Facebook acquired in April 2013) and MediaPlex, a division of ValueClick. 

Its main competitors for stand-alone video ad serving are Vindico and Innovid. In the stand-alone rich media category, its competition are niche players, such as FlashTalking. It contends in data and analytics with Integral Ad Sciences and DoubleVerify for verification.

Better Days Ahead for Sizmek and Rocket Fuel?

Despite the admitted risks and financial losses, company officials are banking on a revival of sorts through this acquisition, which represents another consolidation story for AdTech

The acquisition is not a done deal just yet. Under the terms of the merger agreement, Rocket Fuel has a "go-shop" right to solicit third party alternative acquisition proposals for the next 30 days.