You could say that Yahoo has more lives than a cartoon cat. After several roller-coaster years under various banners, the iconic internet brand officially starts its next era. PE firm Apollo Global Management today announced the completed acquisition of the company — formerly known as Verizon Media — from Verizon.
The newly-formed entity will begin operating as a standalone company under the name Yahoo. Former Verizon Media CEO Guru Gowrappan will maintain the Yahoo chief-executive role (at least for now). In total, the deal was worth $5 billion ($4.25 billion in cash), with Verizon maintaining a 10 percent equity stake.
As for what Apollo gets for that price tag, it includes Yahoo’s own branded properties (Mail, Sports, Finance, etc.), as well as publishing offshoots like TechCrunch, AOL, and Engadget. Altogether the group accounts for 900 million monthly active users, making it the third-largest internet property according to Apollo.
Backing up, how did we get to this point? Yahoo was initially the lynchpin in a Verizon effort to move into online media, including ad-tech. The thought is that online media is adjacent to cable and telecom operations, thus bringing potential synergies and economies of scale (similar to Time Warner’s recent playbook).
Specifically, Verizon was acquired AOL in 2015 for $4.4 billion, followed by Yahoo in 2017 for $4.5 billion. It then merged them into the beast known as Oath, before rebranding as Verizon Media Group. Altogether it was meant to be an online media and ad-tech powerhouse with several vertical brands, a la Vox Media.
But Verizon ran into issues in prioritization, culture, and other organizational inertia that prevented the vision from being fulfilled. Moreover, online media proved to be capital and resource-intensive — to the point of distracting from core organizational priorities and growth strategies such as extensive 5G rollouts.
That brings us to the present, and Verizon’s decision to exit the online media racket. Even though its getting a 50 percent return what it paid for the combination of AOL and Yahoo (not to mention operating expenses in the interim), it’s for Verizon’s greater good. In that light, selling off Yahoo was likely the right call.
Or as my colleague Neal Polachek wrote in May when the deal was first announced:
For Verizon, moving out of the media business is an easy call. The company, which touts itself as a leader in next-generation 5-G mobile technology, recently invested $53 billion in wireless spectrum. This massive investment has helped swell Verizon’s debt to $180 billion. So selling off the media assets for $5 billion seems more about eliminating a management distraction than helping reduce its debt.
Given all of the above, the question still looms: What will Apollo do with Yahoo? That’s largely unknown but we can project some high-level outcomes based on the common PE playbook. That could involve selling pieces and properties of the multi-headed Yahoo in a way that streamlines the organization.
The goal in this process is to squeeze more total value out of standalone pieces, and the remaining optimized entity. Liquidation events could follow, including property sales and/or an exit event for the company itself. Synergies may also be seen in other Apollo media investments like Cox Media Group and Gannet.
Meanwhile, the fate of Yahoo’s existing online media properties is likely the most uncertain part of the formula — which is what makes PE deals potentially scary, depending on where you sit. Meanwhile, Apollo has verbally committed to investing in Yahoo properties and has secured all jobs in the near term.
“We look forward to partnering with Yahoo’s talented employee base to build on the company’s strong momentum and position the new Yahoo for long-term success as a standalone consumer internet and digital media leader,” Apollo Partner Reed Rayman said in today’s announcement. “[We’ll] look to invest in growth across the business, including accelerating its customer-first offerings and commerce capabilities, expanding its reach, and enhancing the daily user experience.”