When it went public in 2012, Millennial Media declared smartphones and tablets the future of digital advertising as it built technology to serve ads targeted by everything from shopping habits to demographics to location.
Investors gobbled up its shares, valuing the homegrown Baltimore firm at $1.87 billion.
Three years later, mobile devices command even more of consumers' time, but Millennial faltered in the face of competition from the likes of Facebook, Twitter and Google, which converted their massive audiences into significant advertising revenue.
The proposed sale announced Thursday of Millennial to AOL for about $248 million cash, one-eighth of its market value on the day of its initial public offering, demonstrates the shifting nature of a still-evolving digital advertising market, analysts and observers said.
The deal could rescue Millennial, which struggled to compete with the Internet giants on its own, they said. And it could boost AOL, which is making a push to challenge media giants after being acquired by Verizon in June for $4.4 billion.
While observers acknowledged the companies could fare better together, the deal raises questions about the future of both companies' local workforces, roughly 450 people split between two brand-new offices less than a mile apart.
AOL and Millennial told employees in an email that AOL is "not only acquiring Millennial Media for its technologies, but for the people who build and bring them to market" and said the companies would "review opportunities to maximize office space and location."
John Ferber, co-founder of Advertising.com, the former Baltimore startup also acquired by AOL, called the acquisition disappointing from the perspective of a shareholder who bought into the IPO.
"I think the deal was great for AOL/Verizon and probably viewed so-so for Millennial," said Ferber, whose company was a training ground for many at Millennial.
Other analysis was even more pessimistic. The headline on a Forbes magazine piece read "AOL Mercy Kills Millennial Media" and suggested AOL would strip the Canton-based operation for its best talent and technologies.
New York-based AOL offered to pay $1.75 in cash for each share of Millennial, a 31 percent premium over its closing price of $1.34 on Wednesday. That translated to a price of about $248 million.
Millennial's stock price rose 30 percent to close at $1.74 Thursday.
That's a significant fall for the former Baltimore startup darling, which sold shares to the public for $13 each in March 2013. On the first day of trading, its shares peaked at $27.90 as investors eagerly jumped onto the mobile advertising bandwagon before they settled to close at $25 each.
The company raised more than $132 million from the sale and Paul Palmieri and Chris Brandenburg, who founded Millennial in Baltimore's Emerging Technology Center business incubator in 2006, each sold several million dollars' worth of shares.
The company grew to eventually take over the incubator's entire former footprint, recently renovating space in the Can Company complex in Canton into a hip new headquarters.
But the stock price trickled downward in the months and years following the IPO as the company failed to turn a profit, losing $149 million last year and $35 million in the first half of this year.
The deal came as little surprise. TechCrunch first reported the possible AOL buyout in early July, not long after AOL's acquisition by Verizon. The telecommunications giant's AOL purchase was viewed as a signal it wanted to be more of a media player than just a provider of "dumb pipes." The AOL of today is a far cry from its beginnings as an Internet access provider, with properties including the Huffington Post, TechCrunch, Mapquest and a stable of original video programming starring Nicole Richie, Kevin Nealon and Zoe Saldana.
Millennial Media CEO Michael Barrett confirmed in early August that it could be sold soon but declined to discuss specifics or identify what he said were multiple interested suitors.
AOL President Bob Lord said in a statement that the addition of Millennial's technology will help its digital ad network, dubbed ONE, better compete for advertisers' dollars.
The combination of AOL's network of traditional Internet ads and Millennial's reach across mobile devices would make AOL a one-stop shop for advertisers looking to buy ads on both traditional and mobile-friendly websites and within apps.
The acquisition reflects the increasing convergence of disparate media platforms — TV, desktop computers, smartphones and tablets — into a single arena within which advertisers are trying to reach consumers, said Don Kennedy, AOL's president of advertiser platforms.
"You can start to see a world where you're looking at not just display ad performance, but mobile performance, video performance, TV performance, and being able to package up a solution to give advertisers a good view of what's working and what's not," Kennedy said in an interview.
Barrett said in a statement he was excited by the deal, a chance to bring "additional mobile expertise to AOL's growing technology assets."
Analysts said companies like Millennial have suffered as their clients have grown weary of dealing with multiple advertising technology companies to reach consumers on desktop computers, mobile devices and TVs.
Advertisers want to focus on reaching a specific audience, narrowed by location and demographics, and not on reaching particular devices or media, said Cathy Boyle, senior analyst for mobile at eMarketer.
"We all switch back and forth between our devices," Boyle said.
Companies like Millennial have developed other means to track consumers and have amassed collections of data on app users as a result, Boyle said.
That expertise could benefit Millennial employees in an AOL merger. While layoffs are common in corporate unions, particularly for back-office roles like accounting or human resources, much of Millennial's appeal to AOL is likely its workforce, which could make widespread job cuts less likely, said Karyl Leggio, a finance professor at Loyola University Maryland's Sellinger School of Business.
"AOL should be getting quite a bargain," Leggio said. "They may not need to do the same kind of layoffs you typically see with companies that are trying to eke out synergies from overpaying for an acquisition target."
Kennedy said he could not comment on any possible layoffs until the deal closes. Millennial employs more than 200 people in Baltimore and 600 across the country, while AOL has a local staff of 250 people, recently moved from the company's longtime home at Tide Point to new space in Brewer's Hill.
"Overall, we're in growth mode," Kennedy said. "We're all looking at this as a growth opportunity."
The deal is expected to close in the fall, subject to regulatory approvals and to a majority of Millennial stockholders tendering their shares.
Millennial Media share price history
IPO sale price: $13
Peak price: $27.90 on March 29, 2012, the day it first traded
Latest 52-week high: $2.40
Latest 52-week low: $1.18
Wednesday's close: $1.34
AOL's cash offer: $1.75 a share