The merger between web discovery platforms Outbrain and Taboola, which would have been one of the largest ever merger deals in Israel's technology industry, has broken down. According to sources familiar with the details, no negotiations are currently taking place between the sides, and at least outwardly the two companies are giving the impression that the potential merger is a thing of the past. Neither company would comment on the report.
Taboola and Outbrain announced the agreement between them last October. The two companies were supposed to merge into one under the leadership of Taboola founder and CEO Adam Singolda. Outbrain's shareholders were due to receive $250 million cash and 30% of the shares in the merged company.
The two companies operate in content recommendations, and they are fierce competitors. The reason that the merger has not yet taken place is the long wait for approvals from antitrust authorities around the world. The deal has been approved in the US and Germany, but so far not in Israel and the UK.
Behind the breakdown of the merger deal is Taboola's attempts to obtain better terms, although there are various accounts of what led it to make such demands. According to a source familiar with the details, Taboola's performance during the coronavirus-induced economic crisis has been better than that of Outbrain, and Taboola therefore sought to reduce the cash element in the deal to $100 million.
"Taboola will grow by tens of percentage points this year, which will be better for the company than the three previous years put together," the source said. "As far as operating profitability is concerned, in a month and a half, Taboola's operating profit was equivalent to that of Outbrain for about a year. This became a material factor in the coronavirus period." Another source said that Taboola was growing at a rate of 20% this year.
There is however another version of events. According to one source, the banks would not agree to extend the finance agreement with Taboola beyond its expiry date last month. Taboola, the source claims, wanted to pay Outbrain in shares only, because it could not obtain finance for the deal. Singolda said in response to this account, "I don’t want to share details, but to say that we failed to raise money is a lie." The same source who made this claim hinted that it was possible that this was an attempt by Taboola to improve its position.
A wholly equity deal is not an attractive proposition for Outbrain's shareholders, who wanted to cash in part of their holdings and reduce their risk. The company, founded by Yaron Galai and Ori Lahav in 2006, has raised $150 million over the years. Among its investors are Glenrock Capital, Viola Ventures, Index Ventures, Vintage, Gemini, and Lightspeed. Taboola has raised $180 million, and among its most prominent investors are the Catalyst, Pitango and Marker venture capital firms, as well as private investor Eyal Gura.
Besides the breakdown of the merger deal, it was also reported that the companies were contending with suspicions of collusion between them. The suspicions arose in the course of the Israel Competition Authority's examination of their merger request. Competition Authority investigators raided the offices of the Ynet news website in Rishon LeZion and questioned senior managers. Ynet CEO Barak Kalmanovich was detained for questioning and his computer and telephone were confiscated.
Published by Globes, Israel business news - en.globes.co.il - on September 9, 2020
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