AOL agreed to acquire video ad exchange Adap.tv for $405 million in cash and stock, the company's biggest deal since Tim Armstrong became CEO in 2009.

The deal comes on the day competing video ad company YuMe started trading on the NYSE and signals further consolidation in the cluttered ad tech space, where companies have invested billions over the past decade.

The deal is slightly larger than the $315 million Mr. Armstrong paid for Huffington Post in 2011, a purchase that gave the company additional size in online publishing and added a big personality to AOL's executive ranks in the form of Arianna Huffington.

This latest deal is about building out a set of ad technologies to better compete with Google and to offer marketers and agencies the ability to buy online video ads on a real-time basis. "Two trends are prevalent in the video space right now -- the movement from linear television to online video and the shift from manual transactions to programmatic media buying," Mr. Armstrong said in a statement.

After the deal closes, the combined businesses will double AOL's existing video ad revenue, he said.

The announcement of AOL's acquisition fell on the same morning that YuMe made its Wall Street debut. Adap.tv had confidentially filed its own pre-IPO documents with the Securities and Exchange Commission, according to people familiar with the matter, but seems to have acknowledged the public market's icy reception of ad tech companies like video ad network Tremor Video, online ad buying company Marin Software and mobile ad network Millennial Media.

On the eve of its IPO, YuMe priced its initial offer at $9 per share, a drop-off from the expected $12 to $14 per share. As of mid-morning, its shares were little changed, up 1%.

In lieu of an IPO the deal represents a pretty good exit for Adap.tv's investors, which have poured $48.5 million into the company over a series of funding rounds since 2007, according to its Crunchbase profile.

Ad revenue grows
The announcement of the acquisition also comes as AOL reported its results for the second quarter.

Total revenue inched up by 2% year-over-year to $541.3 million but was outpaced by advertising revenue, which grew 7% year-over-year to $361.2 million. Global display advertising contributes the bulk of that segment's revenue -- $146.2 million, a 5% improvement over last year. Net income was $28 million, well below last year when the company recorded a $1 billion sales of patents to Microsoft.

Revenue for AOL's owned-and-operated sites, broken out as the company's Brand Group, rose 10% to $190.3 million, though it still came in second to the flagging subscription business among AOL's largest revenue contributors.

Ad revenue was bolstered by an increase in the number of ad impressions served on AOL's owned-and-operated properties like AOL.com and The Huffington Post on a "reserved" basis as well as higher average prices for those impressions.

Reserved advertising typically translates to advertising sold manually by a direct sales team and often fetches higher prices per ad than those auctioned off through automated ad buying programs. That's why reserved inventory also usually equates to premium placements like a banner on AOL's home page, for example, or a pre-roll video spot run during one of its original video series.

But AOL wants to sell more of that premium inventory programmatically. Mr. Armstrong said during the company's earnings call on Tuesday that advertising sold through automated processes doesn't have to suffer lower pricing.

Ad tech unit AOL Networks -- which grew its revenue by 5% year-over-year to $160.4 million -- has taken on increasing importance as part of that premium-to-programmatic strategy. Last month the company hired former Razorfish global CEO Bob Lord to oversee the division.