Speaking about his outfit’s latest quarterly report, one of the foremost advisors in M&A for the adtech sector Terry Kawaja, chief executive of Luma Partners, speaks to The Drum about his assessment of the likely outcomes in the mid-to-long term future.
This includes the potential impact of the shifting political tides across the globe, especially on either sides of the Pacific Ocean, as well as the likelihood of further adtech purchases by martech players as well as telcos.
Mergers and acquisitions (M&A) in the adtech and martech space were led largely by acquisitive private equity groups and telcos throughout the last two quarters (see chart directly below), notable deals in the sector included Altice’s purchase of outstream video firm Teads and Singtel-owned Amobee’s buyout of demand-side platform Turn.
This continued trend towards M&A in the adtech/martech/agency landscape has seen private equity, management consultancies, and telcos all increasingly aggressive in the space throughout that last 12 months, and Luma Partners’ latest report shows that digital content outfits were the most attractive of said propositions in the opening quarter of 2017.
Political headwinds and the impact for M&A
“The change in the turn in the AT&T and Time Warner situation, which went from from the [then] president-elect situation to one where all-of-a-sudden where it’s not going to get full FCC-review, and I think that heralds a situation of verticalized media that is definitely here to stay,” Kawaja comments.
This means that deals such as the above, plus Verizon Wireless’ pending-purchase of Yahoo will potentially have a significant impact on the tide of global media consumption, the result being renewed interest of potential acquirers when it comes to outfits in the paid-for media landscape.
“I’d say what all three are light on is digital monetization… So that’s an interesting opportunity for the sector, in terms of potential buyers,” Kawaja says. He later goes on to speak of his belief that because the current US administration is “dedicated to light regulation”, this could potentially prove a boon to further consolidation activity in the space.
“Should the [Republican] party that controls the Senate, House [of Congress] and Whitehouse manage to get their act together when it comes to issues such as tax reform as regards the repatriation of overseas cash, then it would be a big boon to M&A activity,” he adds. “Because we have a lot of companies with a lost of cash burning a hole in their pocket.”
In tandem with this, is the increased interest of potential Chinese acquirers, although Kawaja also points out that policies pursued by the government there, which inhibits the expatriation of otherwise taxable money, could negatively impact their interest in global adtech outfits.
“I’m not sure the domestic or international mix will change as a result of those [US] policies, I do think that a far greater impact on the Chinese investment activity has to do with their capital control policies… if that continues then we could see a trailing off investment activity out of China,” he adds.
With speculation over multiple ‘fire sales’ in the adtech sector rife (as early stage investors become increasingly impatient for an ROI) Kawaja also shares his opinion that the significance of the reduction in the number of deals taking place for over $100m between the final quarter of 2016, and the opening of 2017 should not be over-exaggerated.
“A quarter is too long a time to discern a trend… over time you can discern trends, but it’s even hard to discern them over a year’s time,” he adds.
He goes on to share his observation that the trend towards martech outfits and management consultancies taking increased interest in the traditional marketing sector (this includes buying-up outfits as varied as adtech and traditional creative agencies) was not going to end any time soon. Albeit, he’s “unclear” if management consultancies will look to buy adtech, even if they are increasingly dipping their toes in the water. “They’re all trying to size up their strategies and opportunities,” he adds.
Martech mulling adtech
Assessing the ever-increasing collision of adtech and martech (which many think will help fuel the buy-outs of ad tech companies) he argues that the announcement of the Adobe Advertising Cloud, post the purchase of video demand-side platform (DSP) TubeMogul, is “an interesting move”, and one that could soon be replicated by its competitors.
Kawaja adds: “Certainly the Adobe-move, is an interesting precedent, and you have to then watch the other big [enterprise software] guys and what they’re up to, but all the guys we talk to are yet to decide what they’re into when it comes to media execution.
“I do know from our sessions with the others that they’re all investigating options in the space, but it’s unclear as to whether the others have yet decided to move into [media execution].”
The strategic thoughts of martech when buying adtech
Explaining the strategic deliberations such martech players are currently mulling when deciding on such a purchase, Kawaja goes on to state that such players are looking to decide what business they’re in and what business model they like”.
He goes on to state: “They tend to prefer predictable revenues that software tends to have and the second consideration would be is the activation part [ie, media buying] and all the aspects that come from that, such as the data exhausts [ie, data leakage] from your activation initiatives, and ask themselves if it’s necessary to own, or can you simply rent that and then interconnect via an API?”
All of the industry’s marketing cloud providers – such as Nielsen, Oracle, SAP, etc – are well aware of the critical importance of media buying capabilities to their stack, but “the conclusion they all need to come to when it comes to M&A is whether or not they need to own it, either for logical strategic reasons, or for defensive reasons..”
Expect more adtech purchases from telcos
Luma Partners’ latest report also goes on to underline the increasing importance of telecoms players buying into the adtech sector as signified by the purchase of Statiq by Telefonica-owned Axonix,Turn’s purchase by Singtel’s Amobee, as well as Teads’ sale to Altice – not to mentioned the ongoing purchase of Yahoo by Verizon – Kawaja reports that others are also eager to get involved.
“Im not going to name names, but sufficed to say there are the existing telcos that have invested, some of which are looking to do more, and there’s folks that haven’t made a move yet that are taking a hard look at the space,” he concludes.