JEGI And Luma: Mar Tech Spends Big While Ad Tech Cleans Up

2017 was a busy year of M&A for the digital media and marketing sector, according to reports released by investment banks JEGI and Luma Partners this week.

Last year included 2,000 transactions in the sector hitting $272 billion in deal value, according to JEGI. It was the fourth consecutive year of increasing transaction value in the space.

But the big story, according to Luma, was in ad tech, where increasing consolidation led to “healthy clean-up activity,” said founder and CEO Terry Kawaja.

“A lot of it was clearing the underbrush and taking public companies private that probably never should’ve been public in the first instance and made for horrible comparables because they were trading at such low valuations,” he said.

There were 49 ad tech deals in 2017, down from 55 in 2016, according to Luma. Standouts included SpotX’s $404 million acquisition by German broadcaster RTL Group,  Turn’s $310 million acquisition by Amobee under Singaporean telco SingTel and DoubleVerify’s $300 million acquisition by private equity firm Providence Equity.

The fact that most ad tech companies are being acquired by big public companies and private equity firms indicates that the space is maturing, Kawaja said.

“This space is going to mature and rationalize like every industry does,” he said. “It’s a continuation of a stepped-up level of consolidation that we’ve seen for the last three years.”

Kawaja expects ad tech acquisitions in 2018 to continue to be led by telcos and private equity firms. If AT&T’s proposed $85 billion takeover bid for Time Warner is approved, it will act “like a pistol going off” for telcos looking to create and monetize content businesses that can compete with Facebook and Google, he said. And companies like Verizon and Comcast, which have ad tech capabilities already, may need to refresh their assets.

“[Legacy TV and telco companies are] woefully behind in terms of monetization technology,” Kawaja said. “They absolutely need advanced monetization and ad tech capabilities to take advantage of the content assets they’ve acquired.”

While ad tech may be maturing, mar tech continues to pull in more impressive deal valuations.

According to JEGI, mar tech acquisitions accounted for 12% of total M&A deal value in 2017 at $5 billion.

Standout deals were Marlin Equity Partners’ $524 million acquisition of Bazaarvoice and Zeta Interactive’s $90 million purchase of Disquis. Other notable deals were Nielsen’s purchase of Visual IQ, Snap’s acquisition of Metamarkets, Oracle’s $850 million acquisition of Moat and SAP’s $300 million purchase of Gigya.

Marketing clouds will continue to acquire as they build their stacks, Kawaja predicted. While companies like Oracle publicly shy away from the media execution business, “invariably as they look to have holistic solutions for clients, activation becomes such a key part,” he said.

Marketing clouds will also need to continue plugging gaps in their software as regulations like Europe’s GDPR and Apple’s intelligent tracking protocol are enforced throughout the industry.

“Data companies that help with known identities, as opposed to anonymously profiling audiences, will be relevant,” Kawaja said.

In consumer media and technology, deal valuations grew 200% last year to $52 billion, excluding Disney’s acquisition of 21st Century Fox, JEGI reported. Media accounted for eight of the top 20 transactions of 2017, including Meredith’s $1.85 billion acquisition of Time Inc. and Scripps Network’s $14.9 billion purchase of Discovery. The space “shows no sign of slowing down heading into 2018,” JEGI’s report noted.

And the digital media side will continue to consolidate after a tough 2017, Kawaja said.

“On the media side, you started to see the wheels come off the digital publishers like Mashable, with valuations much lower than previously expected,” he said. “There’s some speculation that others like Mic were pursuing a buyer at lower valuations.”

Agencies led 26% of deals in the marketing services sector, which saw 574 transactions amounting to $41.7 billion in deal value. Bain Capital’s acquisition of Japanese agency Asatsu-DK was one of the largest deals across all sectors, JEGI said. Market research and consulting led 37% of deals in the sector, spending a collective $15.4 billion across 86 deals.

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