AOL Inc. (NYSE: AOL) is set to buy Adap.tv, which helps businesses buy and sell ads for online video electronically, for $405 million. The price tag breaks down to about $322 million in cash and roughly $83 million in stock.

Adapt.tv develops software that serves targeted advertisements to online video users and provides a marketplace of ad buyers and sellers. Founded in 2007 and headquartered in San Mateo, Calif., Adap.tv had raised nearly $50 million from venture capital firms, including Bessemer Venture Partners, Gemini Israel Funds, Redpoint Ventures and Spark Capital.

Recent developments, including the success of the political thriller series “House of Cards,” produced by Netflix Inc. (Nasdaq: NFLX) and available only through its online service, and the high-profile dispute between CBS and Time Warner Cable, have underscored interest in new methods of video delivery, programming and advertising. (For more on the trends, see “Consumers Drive M&A in Digital Media.”)

The Adapt.tv deal shows how AOL looks to expand into video advertising as a means to increase sales from marketers. The transaction marks the New York-based Web company’s largest deal since CEO Tim Armstrong (pictured) joined AOL as chief executive in 2009. He had in 2011 acquired Huffington Post for $315 million and emphasized the upside potential for online video.

AOL’s second quarter revenue rose almost 1 percent to $541.3 million, while net income fell to $28.5 million, or 35 cents per share, compared with $970.8 million, or $10.17 per share, a year earlier, when AOL sold a group of patents to Microsoft Corp. (Nasdaq: MSFT) for more than $1 billion.

AOL tapped law firm Gibson Dunn & Crutcher LLP as legal counsel. The deal was led by New York partner Barbara Becker and includes associates Aaron Holmes, Roy Moran and William Simmons.

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