Ad network Tyroo Media Pvt Ltd has joined hands with Anurag Gupta for a management buyout of affiliate ad network DGM India for Rs 3.35 crore ($0.66 million) from Asia Digital Holdings (ADH). Of the total deal amount, Rs 2.36 crore will be paid as the first tranche.
ADH is an AIM-listed firm while Gupta is the managing director of DGM India. Gupta is picking the stake for Rs 81 lakh through the entity Inflection Digital Holdings Pvt Ltd, which will own 32.79 per cent stake. Tyroo, a Gurgaon-based ad network, is picking 61.76 per cent for Rs 1.54 crore.
In addition, ADH will seek to procure the sale of the remaining 5.44 per cent stake for the acquirers, which may be held by other employees of the firm or owned by some other minority stakeholder.
While Gupta will continue to be the managing director of DGM, Siddharth Puri will continue to head Tyroo's existing affiliate marketing business called Tyroo Direct.
As part of the deal, ADH is also transferring the intellectual property (IP) rights to DGM India for Rs 78.75 lakh. Under a related arrangement, DGM India has agreed to pay ADH a fee of Rs 20 lakh for the provision of technical support to DGM India for a period of 60 days following the IP transfer by ADH to DGM India.
DGM India delivers leads and sales for advertisers. Its delivery channels include an affiliate network and search engine marketing. In an affiliate channel participant website, owners are paid on results delivered for advertisers from digital promotion of the advertisers' offering, which typically entails consumers actually buying products and services. Results are tracked by DGM India's technology environment and account management teams that service both advertisers and participating web site owners.
Search engine marketing involves management of an advertiser's purchase of traffic/clicks through sponsored links on major search engines such as Google or Yahoo and/or web site optimisation for better positioning on search engines unpaid or natural listings.
During the year to 31 December 2011, DGM India clocked gross turnover of £1.97 million and a gross profit of £660,000 with positive EBITDA of £221,000 (in 2010 it was £21,000). This means the deal values DGM India (including the IP rights and associated fee) at 1.8x EBITDA.
The sale by ADH follows a strategic review of its business units last December and in the absence of the required funding to finance the growth of its operations it decided to sell the established operations in India and Singapore. ADH is an independent online marketing group focused on China, with operations in South East Asia and India.
Last year, investment firm Explorer Capital acquired 35 per cent stake held by Yahoo in Tyroo for an undisclosed amount. Yahoo was one of the early investors in Tyroo, which was set up in 2007.