What happened

Shares of Magnite (MGNI -5.38%) were jumping today after the ad tech company said it would acquire SpotX, a video advertising platform, from RTL Group for $1.17 billion in cash and stock. It also reported preliminary results for the fourth quarter. 

As of 11:14 a.m. EST, the stock was up 21.3%. 

A woman looking at several TV screens on a glass wall.

Image source: Getty Images.

So what

Investors widely cheered the deal, which will make Magnite, a supply side platform that helps publishers manage their ad inventory, the largest independent connected-TV (CTV) and video advertising platform, according to the press release.   

CTV, or ad-driven video streaming, has become a huge growth market in the ad tech industry, and excitement about it has lifted valuations across the board. Magnite will pay $560 million in cash and 14 million of its shares for SpotX. Michael Barrett, Magnite's CEO, said, "Sellers have been looking for a scaled independent alternative to the giant companies who dominate the CTV marketplace," adding, "Ad-supported CTV is just beginning to draw budgets from linear TV and we will be well-positioned to participate in the strongest segment of industry growth for the foreseeable future." 

For the fourth quarter, the company said revenue jumped 69%, according to generally accepted accounting principles (GAAP), to $82 million, or 20% on a pro forma basis, when factoring in the Telaria acquisition. CTV revenue jumped 53% in the quarter to $15.3 million, also on a pro forma basis. Magnite and SpotX, combined, produced $42 million in revenue, and more than half of SpotX's revenue came from CTV, showing its strength in the category.

Magnite expects to achieve $35 million in cost synergies from the deal, and said it would close in the second quarter of the year.

Now what

Magnite was formed last year by the merger of Rubicon Project and Telaria, and the SpotX acquisition shows that the company aims to continue growing through acquisition. Consolidating its power on the supply side and in CTV is a smart move, and it's not a surprise to see the growth stock rising on the news.  

Programmatic platforms like Magnite also offer investors the benefit of high profit margins as the company posted an adjusted EBITDA margin of 36% in the fourth quarter, or $29.9 million.

Expect to learn more about the deal when the company delivers its full earnings report on Feb. 24.