AOL Buy Web-Personalization Startup Gravity $90.7

AOL announced a deal to acquire Gravity, a startup that lets Internet publishers and advertisers target content based on users’ tastes and online activities, for $90.7 million in cash.

By acquiring Gravity, founded by a group of former MySpace execs, AOL wants to boost engagement by delivering content and ads that are presumed to be of greatest interest to individual users. Gravity’s system applies real-time filters to digital content, creating an “interest graph” based on someone’s interests, preferences and habits. That lets publishers offer a tailored selection of editorial and advertising content to users.

After the deal closes, expected in the first quarter of 2014, the Gravity product and team will report to Luke Beatty, now head of AOL Brand Group. Beatty joined AOL in August as head of strategic partnerships. He was the founder and CEO of Associated Content, the “crowdsourced” content company (a.k.a. content farm) acquired by Yahoo in 2010.

“The web is moving to the era of personal, and a personal web filter will reshape how consumers get information and services,” AOL CEO Tim Armstrong said in a statement. “Gravity is joining AOL to lead the personalization transformation of AOL’s brands and platform partners.”

Gravity customers include Sony, Intel, USA Today and GAP. The firm had raised $20.6 million from investors including August Capital, Redpoint Ventures and Upfront Ventures.

AOL said it will acquire Gravity for a closing purchase price of approximately $83 million. An additional $7.7 million of consideration will be deferred and paid over two years following closing. As part of the transaction, AOL will acquire approximately $12 million of net operating losses, which is expected to result in a future cash tax benefit to AOL of approximately $5 million.

Gravity, based in Santa Clara, Calif., was founded in 2009 by former MySpace execs Amit Kapur, Jim Benedetto and Steve Pearman. The startup has about 40 employees “and we expect virtually all of them to join AOL,” an AOL rep said.

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