The rising popularity of martech, and the decline of adtech
Private equity firms and business interests from the Far East are increasingly taking a stake in the combined adtech and martech space, according to Results International, which also finds that martech is growing in popularity with acquirers.
Adtech is on the wane when it comes to its attractiveness to potential acquirers, with whom martech is increasingly popular, according to financial advisory firm Results International, which has released numbers suggesting that the combined value of deals in both sectors was $24.18bn in 2016.
The number of mergers and acquisitions (M&A) deals in the combined adtech and martech space numbered 412 last year, but the number of adtech deals completed fell from 155 in 2015 to 121 in 2016, whereas martech deal volume rose from 256 in 2015 to 291 in 2016.
Investors are increasingly attracted by the larger multiples posed by martech, as opposed to the those on offer from adtech
The total disclosed deal value in the combined sector was $24.18bn – an increase of $9.6bn year-on-year – although Results International also revealed that the increase in the value for adtech deals was $15.22bn in 2016 (up by $6.52bn from 2015), whereas deal value growth was less pronounced in martech, up from $5.7bn in 2015 to $8.96bn in 2016.
Further inspection of the transactions for 2016 revealed that the combined deal value was skewed by a number of “mega acquisitions” where the value in excess of $1bn. These include: Yahoo’s sale to Verizon ($4.8bn); Demandware’s purchase by Salesforce ($2.8bn); Marketo ($1.6bn) and Cvent ($1.7bn) by Vista Equity Partners; Applovin by Orient Hontai Capital Partners ($1.4bn); and Sitecore by EQT ($1.1bn).
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One notable differentiator between the purchase activity of 2015 and 2016, was the increased activity of private equity groups, with such outfits accounting for 12.6% of deals in 2016, in fact private equity firm Vista Equity Partners overtook WPP to become the most acquisitive buyer in the adtech/martech sector, completing a total of seven deals.
WPP – having made four deals in 2016 – also fell behind Dentsu Aegis Network – which completed five deals during the surveyed period. Results International also claimed the most acquisitive outfits included internet firms such as Alphabet (aka Google), eBay, and Rakuten, with publishing outfits such as Time Inc, and enterprise software businesses such as Salesforce and IBM also among the larger acquirers.
Commenting on the last 12 months of consolidation in the space Julie Langley, a partner at Results International, pointed out that consolidation is continuing at pace in the sector, and that the increased activity of private equity firms was also complemented by the increased acquisitiveness of some (previously) unheard of outfits.
She added: “As adtech and martech technologies have matured, they’ve become more attractive to both private equity firms and to Asian acquirers that wish to invest in scaled businesses in the West.”
Results International further claimed that North America is still the most significant target market for M&A in both the adtech and martech sectors, with 53 (44%) and 171 (59%) deals completed respectively – a marginal year-on-year increase for both. Meanwhile, the sale of UK companies in the space generated 8% of value in the adtech space, plus 7% of value in the martech space.
Langley added: “2016 was a year of mixed signals and yet again we’ve seen quite a difference between the fortunes of adtech versus martech. Martech deal activity continued to rise; there were 291 martech deals in 2016, up from 256 in 2015.
“By contrast, despite some very large acquisitions, overall adtech deal volume was down from 155 deals in 2015 to 121 in 2016. However, the range of buyers interested in the sector continues to expand and drive solid levels of deal activity. We also saw renewed life in the public markets, with the first adtech IPO since Q2 2015 in the form of The Trade Desk."
Results International forecast deal activity would remain robust in 2017, driven by an ever-expanding buyer universe and advancements in media consumption, such as connected TVs, etc.
Langley added: “Hot areas are likely to include AI and machine learning, virtual reality, user generated content, augmented reality, discovery and data and predictive analytics.”
The report is published as speculation looms over the fate of Rubicon Project, an adtech outfit whose interests lie predominantly in the supply-side of the business, and listed publicly in 2014. Rubicon Project, whose stock price has tanked since the disclosure of its second quarter results when it revealed it was behind the curve on adtech trends – notably header bidding – is seeking a buyer to take it private. Recently it has procured the services of Morgan Stanley to go guide it through the process, according to a Wall Street Journal article last week.
This comes as Rubicon Project goes about laying off 19% of its global headcount, with private equity heavily touted as a potential buyer, with well placed sources in the sector dismissing the likelihood of a buy-out from one of the major network agencies, or a potential acquisition from one of the media industry’s major publishers (or indeed a consortium of them).
Speaking previously about her thoughts on the reasons behind the stuttering performance of adtech companies (both publicly-listed and private) Langley said: “I think it’s very similar to what we saw in 2000, and 2001, too much money has been raised at too high valuation(s).
“Nearly every adtech company that has gone public is currently trading at beneath its IPO price. And if you look at the venture capital market, too many companies raise Series A, Series B rounds at a $60-to-$100m valuation, and haven’t been able to get the exits that make their investors happy.”
Langley went on to highlight that there has been over 200 M&A deals in the adtech sector in the last 18 months, with over 186 different buyers. “That is a huge number of buyer to be interested in ad tech,” she added.
Speaking separately with The Drum, Luma Partners chief executive Terry Kawaja highlighted why martech companies are increasingly popular with investors, compared with adtech companies; namely how “the software model” was increasingly attractive as opposed to “the media model”.
He added: “You’ll start to see greater multiples from the software model than from media, but that’s for obvious reasons,” he says, adding that the latter type of company is more exposed to seasonality where media spend peaks and dips throughout the year.”
Indeed, 2016 witnessed a number of deals where enterprise software companies themselves acquired both adtech and martech outfits, with notable examples including Adobe purchasing TubeMogul (which itself was publicly-listed) for $540m, plus SalesForce’s purchase of Krux earlier in the year for a reported $700m.