It’s been another big week for M&A in ad tech with over five separate deals involving Sizmek, Teads, Yieldbot, and Distil Networks collectively worth over $200m in funding, plus the curios case of Axel Springer (a publisher that has tried multiple times to take AdBlockPlus to task) actually buying an ad blocker of its own.
Collectively, the deals show that liquidity has far from gone from the ad tech space for those with the right wares, plus they also act as a bellwether for what’s hot in the market right now, as the use of automated advertising systems becomes the new normal for online advertising.
The five deals in question are outlined in the bullet points immediately below in rank order of value, and analysed in detail further down, with each demonstrating what direction some of the serious sources of capital want to take the ad tech market.
- Sizmek taken over by Vector Capital
- Teads eyes Asia with $47m expansion fundraiser
- Yieldbot Raises $35m in Series C Funding
- Distil Networks receives $21m in funding
- Publisher Axel Springer has invested in ad blocking startup
Public ad tech companies find salvage in private ownership
Sizmek, a company that listed on the Nasdaq during the first wave of ad tech floats in 2013, announced this week that it is to be taken private by Vector Capital as part of an all-cash offer worth $3.90 per share, in a deal reportedly valued at $122m.
However, in the immediate aftermath of the announcement shareholder rights law firm Tripp Levvy announced it is investigating the agreement because the offer "unfairly under-values the true going forward inherent value of Sizmek."
Regardless of this, let’s analyse the evidence presented to the financial markets, as earlier in the week Sizmek made its latest quarterly statement, with the top line numbers pointing in the right direction, but some of the underlying figures demonstrating the core issues facing such companies.
For instance, while revenue for the period was up by almost $9m ($48.9M for the quarter), that’s 22 per cent, but net loss was still $1.04m (albeit, this had narrowed from $7.9m 12 months earlier), see chart immediately below.
In addition, the company was quick to highlight how programmatic revenues were up by 47 per cent (i.e. it is less reliant on insertion orders, a.k.a. I/O’s, from media agencies), but as the charts below demonstrate investors are just not satisfied with these numbers in the way that they were 12 months ago.
Source: Google Finance
However, this is not to say that such companies provide little value. More accurately, their value is yet to be realised, and in private ownership the leadership of the company can find the breathing space to go about achieving their aim. Sizmek has described its ambitions as building an open ad stack providing an alternative to the industry’s walled gardens. The below statement from Vector can also lead us to expect further consolidation in the space once the deal concludes.
Alex Beregovsky, managing director at Vector Capital, commented: “We plan to invest in the Company’s growth, to further strengthen its industry-leading open ad management platform, to launch adjacent product offerings as well as to support Sizmek with capital for acquisitions.”
It’s worth noting that there are several similar instances of publicly-listed ad tech companies being taken off the market in the last 12 months, i.e. AOL and Yahoo both being bought by Verizon Wireless (although itself a publicly traded entity), and Millennial Media purchased by AOL itself soon after its acquisition by the US telco.
Leading industry commentators forecast much more consolidation in ad tech, and if private equity groups, etc., feel they can create value with assembled ad tech players for an eventual exit, we can expect similar such deals in the not too distant future.
Security is key if publishers are to open up
Elsewhere this week, San Francisco based Distil Networks announced a funding round of $21m, with participation from Silicon Valley Bank and existing venture investors Bessemer Venture Partners, Foundry Group, and TechStars, in order to bolster its growth over the next 18 months.
Essentially, Distil helps advertisers and media owners detect ‘bad bots’, i.e. automated traffic to publishers’ websites that is not benevolent - unlike a Google bot that indexes webpages – often used by competitors, hackers and fraudsters to essentially ‘game the system’.
Such ‘bad actors’ siphon revenue/value out of the industry through activities such as account takeovers, competitive data mining, online ad fraud, or disabling webpages, and awareness among advertisers as well as media owners is in on the increase.
A little over a month ago a survey from ExchangeWire Research revealed that less than a fifth (19 per cent) of media professionals feel ‘very well informed’ about the threat of malware, but also a widespread agreement that the threat posed by malware is on the rise, and that successfully tackling such issues was on the top of many participant's too-do lists going forward (see chart below).
With the media industry laden with demand for such wares on all sides, we can expect further investment/acquisitions from said players in this space, particularly as publishers grow increasingly wary of whose lines of code (and more importantly what information they’re extracting) are on their websites.
The cookie era, really is starting to crumble
Meanwhile, this week also saw Yieldbot announce that it has raised $35m in Series C funding to help bolster its US presence, as well as develop its wares in cross-screen tracking, and enabling a video advertising service.
The round was led by new investor, Staley Capital with participation from all existing venture investors RRE, New Atlantic Ventures, SJF Ventures, Converge Venture Partners as well as capital participation by City National Bank.
Yieldbot connects advertisers with ‘active consumer intent’ via header bidding and cookieless technology using its IntentRank platform, placing it squarely in competition with Google.
Yieldbot CEO, Johnathan Mendez, summed up the company’s pitch to market in a statement announcing the deal: “We’ve proven our cookieless intent technology understands what people are doing right now. No data is more important to deliver relevance in today’s mobile world then understanding and activating immediate consumer needs.”
Advertisers are increasingly aware of the value of first party data, and the limited capability of cookie-led targeting and tracking, and those with the capability to target people (and not devices, or browsers, etc.) are increasingly en vogue.
This is commonly referred to as ‘people based marketing’ (as discussed at length in the most recent Luma Partners report), with Facebook and Google (the industry’s foremost ‘walled gardens’) dominating the online ad space for exactly their capability to target users across screens.
However, as WPP CEO Sir Martin Sorrell is quick to point out, advertisers would do well if the duopoly of his ‘frenemies’ is disrupted, and any player that can match the targeting capabilities of said walled gardens, and bring more plurality to the market will likely to have advertisers beat a path to their door.
With Mendez declaring his intention to use this investment to grow aggressively (including possible acquisitions) expect more players to enter this space.
Axel Springer buys an ad blocker of its own
Despite engaging in a high-profile spat with AdBlock Plus, involving numerous court cases, it has come to light that German publisher Axel Springer has invested in a Berlin-based ad blocking startup.
The European digital publishing house, which owns the likes of Business Insider and eMarketer, this week confirmed it has stumped up to help fund the growth of internet security firm Zenguard.
Zenguard specialises in security software, but one of its tools ZenMate pulse equips users with a free ad blocker.
Axel Springer has been vocal in the fight against the use of ad blockers in Europe, banning the software from the website of its popular tabloid Bild in order to protect revenue. Announced toward the end of last year, the move means that visitors must turn off their ad blocker or pay a monthly subscription fee of €2.99 to browse the site with only limited ads.
Nonetheless, the publisher’s accelerator program Plug and Play has still invested in the startup, the deal marks a curious twist in the ad blocking saga, and with Shine Technologies also revealing more about its product roadmap recently, further twists are in this tale.
Teads eyes eastwards expansion, and expect more to do likewise
Video advertising company Teads is ready to tackle Asia upon raising $47m in funds to invest in start-ups and ad tech companies in the region.
Debt financing from BNPP, Bank of China, HSBC, Banque Palatine and BPI made the funds available, as the company looks to challenge for a larger share of the market in the APAC region.
Teads chief Bertrand Quesada said the funds will help launch the company into Asia from its stronghold in Japan “solidifying our worldwide operations to best serve our customers, brands, agencies, trading desks and publishers”.
With inventory growth in Asia simply not keeping up with ad spend growth, plus quarter-over-quarter growth rates in APAC largely surpassing that of Europe and North America, expect more companies to follow in their wake.