LUMA Partners’ Kawaja On Demdex Sale To Adobe

LUMA PartnersTwo weeks ago, Adobe Systems acquired data management provider Demdex in a deal facilitated in part by boutique investment bank, LUMA Partners. Read about the deal.

LUMA Partners’ Terence Kawaja (maker of his well-known ad tech ecosystem map/”eye chart”) discussed the acquisition and its ramifications. Given LUMA Partners advisory services in the Demdex sale to Adobe, what do you think was Adobe’s strategic rationale with the acquistion?

TK: For Adobe, this is a very smart move.  They augment the Omniture product suite with data management capabilities. Adobe has an incredibly rich data set captured through its SiteCatalyst product, the leading web analytics product on the market.  By adding Demdex’s audience management solution, Adobe will now instantly become a leader in display advertising.  Advertisers will be able to combine its first-party SiteCatalyst data with third party data to identify and categorize the site visitors, and then effectively target high-value audience segments with display advertising campaigns.  Similarly, Publishers utilizing the Demdex audience management solution will better understand their site visitors, and therefore be able to more effectively sell their inventory.  Demdex’s audience management solution and its approach to the market was an ideal fit with Adobe’s product line and sales model, making Adobe + Demdex a perfect match.

The data management (DMP) space has become an attractive sector for both investment and now acquisition.  Why would you say that is and do you see more activity?

The data space has become hot following the rise of audience-based media buying.  All the major players from marketers to agencies to DSPs, SSPs and publishers are realizing the necessity of effectively managing their audience data.  I expect significant continued activity as companies from a variety of sectors have shown interest in online data management.  As you know that can come in a variety of forms: software-as-a-service companies like Demdex to data marketplaces to firms that manage both data and media inventory and some that have multiple go-to-market offerings.  These different business models make sense for different strategic buyers.

You have sold ad tech companies to Google, Yahoo and Adobe in the last year.  Can we expect more, similar transactions from LUMA Partners?

The majority of the now seven deals we have advised on (including Invite Media / Google, Dapper / Yahoo and now Demdex / Adobe) all follow a similar pattern where the companies where bought, not sold.  In each case we were in deep discussions with the strategic buyer about their interests, helped identify the appropriate target and then negotiated the transaction representing the company being bought.  This we believe is a more strategic approach to corporate development that breeds better outcomes for all parties.

Isn’t there an auction process?

Absolutely not.  That would have sub-optimized the outcome.  Besides, these were all successful growing business that required the full attention of their management teams.  We helped with creating and then managing inbound interest in a context where the company is NOT for sale.  We believe it is a differentiated and value-added approach.   Ask the CEOs of these companies who can attest to the less taxing nature of this approach.

You brought on Brian Andersen from Adobe in November.  Was that key to this deal?

Brian was critical to the Demdex deal.  We had discussions with Adobe back in the summer long before Brian’s arrival but clearly he was uniquely positioned to advise on the process given his prior experience.   In fact, one of the advantages of having an industry corporate development executive is the insight that we can provide our clients in terms of the strategic buyer thinking and process.

What sectors are you expecting to be active in terms of strategic M&A?

There are a variety of areas where we see activity in 2011 and beyond.  As mentioned, we are likely to see more deals in the data space.  The strategic interest in companies with differentiated capabilities in optimized media buying only continues to build – on both the demand and supply sides of the ecosystem.  We are also seeing strong interest in video, content, mobile and cloud computing.

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