Despite predictions that winter is coming to ad tech, deal activity for the ad tech, mar tech and digital media sectors was tentatively healthy in 2016, according to reports released this week by investment banks LUMA Partners, JEGI and Petsky Prunier.
Deal activity rose to the $100-to-$200 billion range. JEGI reported deal activity at roughly $219 billion, for example – a 44% increase from $152 billion in 2015. Software- and tech-enabled services was the most active sector, followed by marketing services and technology.
Petsky Prunier pegged deal activity for marketing, media and technology at $169 billion and software, information and business services at roughly $126 billion.
Notable acquisitions included Microsoft’s $26 billion purchase of LinkedIn, Xaxis’ purchase of Triad Retail Media, IBM’s buyout of Resource/Ammirati, Salesforce’s $700 million acquisition of Krux, Adobe’s $540 million purchase of TubeMogul, Criteo’s $250 million acquisition of HookLogic and Oracle’s purchase of Crosswise.
These deals signal “companies breaking into new product offerings and competitive sectors via M&A,” said Tolman Geffs, co-president at JEGI.
“They’re looking for new growth avenues, diversified revenue streams and to deploy some of their core assets into new markets,” he said.
Activating Consumer Networks
Companies that can connect the known with the unknown and execute one-to-one marketing have continued to attract buyers – including telcos, marketing clouds and tech and data services companies – to the mar tech and ad tech space, said Terry Kawaja, CEO of LUMA Partners.
Companies that have data want to make decisions with it in real time, Kawaja said. Salesforce’s acquisition of Krux, Adobe’s purchase of TubeMogul and Oracle’s hook-up with Crosswise are all good examples.
“The companies that have developed those capabilities happen to be in ad tech or mar tech,” he said. “If you put that lens on it, there’s a logical reason why they would invest in this sector.”
Then there are the services firms, such as agencies and consultancies, that need their own data capabilities and networks to compete with Facebook, Google and other giants. Kawaja pointed to Dentsu’s acquisition of Merkle and WPP’s purchase of Triad as early holding company restructures that aimed to support data at the core.
“There’s a broad recognition that Facebook is winning is because of deterministic data,” Kawaja said. “Any service offering that can offer people-based marketing solutions clearly is one where you can demonstrate better efficacy and will be a hot area for investment.”
In 2017, companies with their own consumer networks may look to make acquisitions in the ad tech and mar tech spaces as consumer data becomes their most prized asset, Kawaja said.
“Credit card companies have large consumer networks, and it could feasibly make sense for them to make some marketing technology acquisition,” he said.
The possibility of one-to-one marketing also made retail acquisitions very attractive in 2016, as illustrated by Criteo purchasing HookLogic, Xaxis acquiring Triad and IBM buying Resource/Ammirati, which has expertise in retail. Companies that can close the loop will continue to be hot M&A targets this year, JEGI’s Geffs said.
“We’re going to continue seeing transactions around supporting commerce and omnichannel sales for retailers, reaching known customers and prospects and moving anonymous prospects to being known,” he said.
The Private Equity Buyout
Venture capital investment dipped 6% in the second half of 2016, while deal value declined by 42%, according to Petsky Prunier.
To Kawaja, that’s a sign of industry maturation.
“Today, ad tech and mar tech is a much more scaled sector,” he said. “It’s only natural that total VC is down because the leaders have been chosen. Now we’re likely to see, like any other industry, a natural phase of consolidation.”
Kawaja sees the uptick in private equity (PE) buyouts as another sign that the industry matured in 2016. He referenced the dozen-plus PE transactions made in the last 18 months that represent more than $10 billion in US investments alone, including Golden Gate Capital’s $2.9 billion purchase of Neustar, SintecMedia’s $200 million acquisition of Operative and Vector Capital’s $122 million acquisition of Sizmek.
“Private equity does not fund profitless, venture startups,” he said. “They play in a more mature stage.”
Kawaja expects PE firms to remain active in the sector in 2017.
“There’s going to be more PE activity as they see opportunities in the later stage of industry development,” he said.
Geffs disagreed. He sees ad tech in more of an adolescent stage, with innovation cycles still moving faster than M&A activity.
“The pace of innovation is still very high and M&A is lagging well behind, partially because it takes time to see which models can win and stay themselves over time,” he said.
