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Yahoo to acquire video ad firm BrightRoll for $640M

Hector Mata | AFP | Getty Images

Yahoo will acquire video advertising platform Brightroll in an all-cash deal as Yahoo looks to accelerate its digital advertising strategy. The deal, which is valued at $640 million, is expected to close during the first quarter.

"The transaction will combine Yahoo's premium desktop and mobile video advertising inventory with BrightRoll's programmatic video platform and publisher relationships to bring substantial value to advertisers on both platforms," said Yahoo in a statement Tuesday.

"Acquiring BrightRoll will dramatically strengthen Yahoo's video advertising platform, making it the largest in the U.S.," the statement said.

Yahoo shares initially turned higher but later wavered in after-hours trading following the announcement.

Rumors about a possible acquisition began to circulate in October when TechCrunch reported the tech company planned to purchase the video ad firm.

BrightRoll's platform, which is expected to rack in more than $100 million in net revenue this year, works across the web, mobile and connected TV devices and uses algorithms to help determine which ads to run against the videos it hosts.

While the programmatic video advertising market in the U.S. will only reach $714 million this year, it is estimated to increase to $3.84 billion by 2016, which is 40 percent of all digital video ad dollars, according to eMarketer. BrightRoll is one of the leading companies in the space and could help boost Yahoo's overall ad business.

Yahoo's share of the $43.1 billion US digital advertising market fell to 5.8 percent in 2013 and this year, its share will drop further to 4.9 percent of the $50.73 billion US digital ad market, according to eMarketer,

Disclosure: CNBC has a content-sharing partnership with Yahoo's finance site.