Israeli digital ad company acquired by global giant

Article Summary
The US digital advertising company Undertone plans to leverage the acquisition — a deal worth $10 million to $20 million — to set up a local hub.

The American digital advertising company Undertone last month acquired the Israeli Upfront Digital Media, previously Legolas Media, for some $10 million to $20 million. It's a fairly small transaction, given that to date, $6.5 million has been invested in the [Israeli] company — this, by the venture capital firms Greylock Partners Israel, Valhalla Partners and Blumberg Capital. Considering the investment, it's by no means a megadeal; yet, it's not a yard sale, either. It should be noted that the company has received a number of acquisition offers, and that the bid by Undertone was not the highest one. Still, it ensured the company and its Israeli development center continuity of operation.

Following the acquisition, Undertone is to set up its first development center in Israel, on the premises of Legolas Media in Ramat Gan [in the Tel Aviv metropolitan area]. The new development center is expected to hire several dozen software programmers and to engage some 50 employees by the end of the year. Israeli daily Calcalist has learned as much. Legolas Media, lately renamed Upfront Digital Media, has thus joined a series of Israeli companies that developed online advertising technologies and were subsequently acquired by global giants. The most recent of these companies is Kontera, which was acquired by the Singaporean [telecommunications company] SingTel's Amobee for $150 million just a couple of weeks before the Legolas transaction. Another company is Amobee, which was also acquired by SingTel, back in 2012, for $321 million. Ajillion Max and Definiti Media were acquired by [Israeli businessman] Teddy Sagi about two months ago for $15 million; and MediaMind was acquired by Digital Generation (DG) in 2011 for $520 million.

Legolas developed an online advertising exchange, launching operations in 2010. At the time, when most advertising companies were still not invested in the field of digital advertising, the Legolas technology was considered ground-breaking. The Legolas ad exchange enables content sites and advertising space dealers to buy and sell relatively high quality premium segment ads and advertising space. The purchase process developed by Legolas is automatic and conducted in real time as in any other stock exchange, where the highest bidder wins. This way, the cost of traffic location is lowered for the advertiser. Yet, it's a highly positioned private ad exchange, distinguished from other common ad exchanges, which are liable to advertise on undesirable sites. Having launched its programmatic advertising system, the company managed to attract a number of [big-time] customers — among them Chrysler, Western Digital, Fidelity, Audi AG, and General Mills Inc. However, Legolas found it difficult to significantly grow its business and failed to win over enough advertisers.

Content sites continued to approach advertisers the old way, on a nonautomated and personal basis. And until quite recently, the ad exchange field was lagging behind.

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The company was set up by a group of former senior executives at MediaMind — which was itself an Israeli online advertising company, sold for $520 million about three years ago. The company’s co-founders are Yiftah Frechter, formerly vice president for research & development at MediaMind; Ran Cohen, who previously served as vice president for product and business development at MediaMind; and Yoav Arnstein, who served as vice president for sales at MediaMind. Arnstein left the company in 2012, and was replaced by [serial entrepreneur] Jonathon Shaevitz, who is to quit office following the acquisition.

The company was eventually sold at a relatively low price — $10 million to $20 million, according to estimates by sources familiar with the transaction. Ran Cohen has led the company from the United States, and upon completion of the transaction, he will help advertisers and content sites to integrate the technology developed by the company. Frechter will serve as director of the development center in Ramat Gan. The company has 20 employees, most of them working in the Israeli Center. By year's end, the center is expected to have a workforce of some 50 employees, who will develop on behalf of Undertone mobile and video advertising technologies, and even advertising based on wearable objects, such as Google Glass, for instance.

Undertone is an American advertising company specializing in premium online advertising, that is, dynamic and colorful advertising on websites, available on both PC and mobile devices. Its annual revenues stand at $250 million, while the investment in the company amounted to a mere $40 million. Its leaders expect the company to go public in the next few years.

So far, Undertone has been considered a rather conservative company in terms of the technology used by it. It has preferred hiring sales agents and customer portfolio managers to the adoption of a programming technology. However, given the interest shown in online advertising through digital channels by major advertising customers like Procter & Gamble and American Express, Undertone, which specializes in premium advertising, decided to acquire a technology company in this area of expertise. The specialization of Legolas in video and mobile advertising, as well as in advertising on websites, has caught its eye, prompting its acquisition proposal.

Yiftah Frechter, appointed as director of the Israeli development center, declined to comment on the details of the deal. However, he told Calcalist, “Undertone intends to turn the Israeli company acquired into its spearhead in the development of online advertising based on mathematical algorithms and real-time decisions; it also plans to hire dozens of programmers, product managers and software testers by the end of the year.”

The name of the company, Legolas Media, is derived from Legolas, the elf featured in Tolkien’s "Lord of the Rings" series — he's armed with a bow and arrows and never misses his target.

Editor's Note: A previous version of this article contained an inaccurate spelling of the name of the company Kontera and an inaccuracy in the name of the acquiring company, SingTel's Amobee. These have since been corrected. 

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Found in: us-israel relations, us, israeli economy, israel, economy, business
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