Rubicon Project (MGNI 2.75%) and Telaria (TLRA) announced a definitive agreement to combine their businesses, forming the world's largest independent sell-side advertising platform. The deal, which the companies assert will enable accelerated growth and cost savings, aims to capitalize on significant tailwinds on programmatic advertising and connected TV (CTV).

Both companies bring to the table complementary businesses on the sell side of the programmatic advertising marketplace. Telaria boasts dominance in connected TV, and Rubicon's scaled programmatic operations will help the combined entity provide more value to publishers and buy-side partners.

Here's a closer look at the deal.

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The details

On Thursday, Rubicon and Telaria said they agreed to combine in a stock-for-stock merger -- a deal the two companies expect to close sometime during the first half of 2020. The merger will occur at an exchange ratio of 1.082 Rubicon Project shares for each share of Telaria.

"Upon closing, Telaria stockholders are expected to own approximately 47.1% and Rubicon Project stockholders are expected to own approximately 52.9% of the fully diluted shares of the combined company," read a press release about the deal.

The combination brings two fast-growing companies together and forms the largest sell-side independent programmatic advertising company, giving the entity a compelling value proposition to publishers looking to maximize the yield of their digital ad inventory across the open internet.

Highlighting the companies' rapid growth, their combined trailing-12-month revenue was $217 million, up 32% year over year. Further, the combined company "will have diversified revenue streams, substantial adjusted EBITDA and a strong balance sheet with approximately $150 million in cash and no debt based on September 30, 2019 balances."

Following the merger, Rubicon's Michael Barrett will be CEO of the new tech company. Telaria CEO Mark Zagorski will be chief operating officer.

Aiming to accelerate growth

The merger will create revenue and cost synergies, Telaria and Rubicon believe. The companies estimate cost savings of $15 million to $20 million annually, resulting in "substantial operating leverage" and "attractive adjusted EBITDA margins."

Further, Telaria CEO Mark Zagorski believes the combination will enable an acceleration in CTV -- one of the most promising channels in programmatic advertising. Telaria's third-quarter CTV revenue was up 115% year over year and accounted for 44% of the quarter's total revenue.

While The Trade Desk (TTD 0.30%) has done a great job providing advertisers with a scaled solution for buyers of programmatic advertising, the sell side of the programmatic advertising marketplace has been more fragmented. With the two companies planning to offer a single platform for publishers to sell inventory across all programmatic channels, the combination can provide more value to publishers and be a more capable partner to buy-side partners like The Trade Desk.

Programmatic advertising remains an attractive market with significant upside potential. Magna Global forecasts global programmatic ad spending to rise about 20% year over year in 2019 -- about five times the growth rate of the overall advertising industry. Further, of the $71 billion spent annually in the U.S. on TV ads, only $7 billion is forecast to be spent on CTV this year, according to eMarketer, and this figure is expected to more than double by 2023. Even more, eMarketer estimates that only half of current CTV ad spending is programmatic, and programmatic is growing faster than overall CTV ad spending.