Gravity4, an advertising technology company founded last summer that has made a slew of smaller acquisitions since launch, has made its largest move to date: The company has placed a $350 million bid to buy Rocket Fuel, the publicly traded programmatic media-buying platform founded in 2008.
Real-Time Daily has obtained the letter of intent Gravity4 sent to Rocket Fuel’s board of directors.
“I have observed that Rocket Fuel has hit a road block in this environment, and continues to struggle with its declining gross margins,” wrote Gurbaksh Chahal, chairman and CEO of Gravity4. He points to Rocket Fuel’s reported $36.9 million loss in the first quarter 2015 in support of this claim.
“Your stock price today ended at $7.63 per share with a market capitalization of $321 million,” Chahal continued. “Thus, we’re prepared to make a formal bid to acquire and privatize the company, in the amount of three hundred and fifty million dollars.”
Gravity4 proposes to buy Rocket Fuel in an all-cash transaction, but Chahal notes that Gravity4 is open to a cash-stock combination “or other flexible terms.”
Rocket Fuel reported its first quarter 2015 earnings on Thursday. The company noted that it had 1,183 employees as of March 31, 2015, but some of its senior management team has left in recent weeks and there are plans to cut staff.
RTBlog noted last month that Rocket Fuel is "sending weak signals to the market, including turnover of (both co-founder and CEO George John, and [x+1]’s John Nardone) its senior management team and now a round of cost-cutting that will reduce its workforce by 11%." If the 1,183 number is cut by 11%, it leaves Rocket Fuel with roughly 1,050 employees.
“The absence of a permanent CEO remains the dominant near-term issue,” BMO Capital Markets analyst Dan Salmon wrote following Rocket Fuel’s announcement about the cost-cutting plan. “We imagine the board is seeking a candidate whose views are aligned with the new cost-conscious strategy, but the vacancy remains an overhang until the position is formally filled.”
This is not Chahal's first attempt to buy a large ad tech company while at Gravity4. Late last year, Recode reported that Chahal made a bid to buy RadiumOne, the company he founded but was eventually ousted from after Chahal was convicted of battery and domestic violence.
If Gravity4 is to acquire Rocket Fuel, it will mark their entrance as a major player in the programmatic space. Rocket Fuel has a longstanding programmatic media-buying platform and data management platform (DMP), and upped its tech stack last year with its acquisition of [x+1].
However, Chahal stresses in his letter to Rocket Fuel’s board that “a company cannot simply function as a DSP/DMP, and point to big data analytics/artificial intelligence to win in this rapidly changing landscape." Chahal points to Gravity4's growing marketing cloud -- which it wants to build to the point of competing with the likes of Oracle and Salesforce -- as a way for Rocket Fuel to recharge.
The article initially noted that Rocket Fuel reported a loss of $13.6 million in the first quarter of 2015. The article has been updated to note that Rocket Fuel in fact reported a loss of $36.9 million during the quarter.