Market consolidation has been one of the key narratives in the adtech and market sectors in recent years, with 2018 already witnessing one such deal in the guise of InMobi’s $90m purchase of AerServ, and this trend is tipped to continue. Sources consulted by The Drum in recent weeks explain their respective theories over what will drive market consolidation in the year ahead.
Privacy implementations imposed by some of the industry’s largest tech brands, plus the European Union’s upcoming Genuine Data Protection Regulations (GDPR), as well as a desire among aspirant platform providers to rival market leaders are likely to drive mergers and acquisitions (M&A) in 2018.
Some industry sources report that these factors have already started to take effect, with a number of adtech and martech M&A transactions taking place in the latter part of 2017 deemed as preemptive measures to ward off competitive and regulatory headwinds.
Terrence Kawaja, co-founder and chief executive of investment bank Luma Partners, points to his outfit’s recent market report which demonstrates that the total number of M&A deals in the US digital media sector between 2016 and 2017 rose from 236 to 252. Although the group also points out the absence of deals during the surveyed that were in excess of a billion dollars, this is compared to six the previous year.
Active buyers included private equity (PE) groups – such as Providence Equity and Vector Capital – telcos, such as Altice’s purchase of Teads, and Singtel’s acquisition of Turn as well as marketing cloud providers.
Kawaja observes the comparative absence of any big-ticket purchases from the industry’s largest tech names in the 2017 buyer’s category, in addition to holding groups also refraining from such activity by and large.
“From a B2B perspective, I don’t see Facebook and Google having to buy,” adds Kawaja. He points out that both members of ‘the duopoly’ (as well as the emergent challenger Amazon) seldom buy online companies that have no consumer-facing offering.
Rather, these outfits are more likely to build their own adtech offering, leaving the reported November 2017 purchase of Metamarkets by Snap a rare example of one of the industry’s large platforms snapping up adtech, and one that will seldom be repeated in his opinion.
“That’s not to say we won’t see such companies pick up a capability here or there, but their default has largely been to build internally,” he adds.
‘The great adtech clean-up’
For Kawaja, 2017 was notable for the deals which saw the removal of previously publicly-listed adtech companies from the public markets. This was exemplary of the disappointment of the markets in such stock prices, and he believes the market will see similar moves in the near future.
“Therefore, for the buyers [such as Vector Capital’s Sizmek] it was a bit of an opportunistic pick-up, as in many cases they are still paying one-times less than net revenue,” he says. “The fact we’re getting rid of that negative comparable is probably a good thing.”
Lee Puri, co-founder of Media IQ, observes that the growing interest and backing of PE is a really positive signal of confidence when it comes to the sustainability of businesses in adtech. “The fact that PE backing has increased over the past few months while holding companies have waned somewhat feels part of a natural levelling out in the industry,” he adds.
However, Kawaja later goes on to stipulate that the few remaining publicly-listed adtech companies (namely Criteo, Rubicon Project, Telaria and The Trade Desk) could potentially be a target acquisition in the 12 months to come.
“Unlike the others [adtech companies that were taken off the public markets in recent years] these are not I/O-based companies that need to sell, these are companies that likely will be acquired,” he opines.
Both Kawaja and Puri openly articulate their belief that companies eager to assert themselves as credible alternatives some of the tech industry’s largest names are also likely to further buy their way to the forefront of advertisers’ attention in 2018.
“When it comes to small to mid-sized outfits, there is the definite need to ensure that what they have to offer is outside of the capabilities of the likes of Google in order to remain relevant and in demand. Independent alternatives to the duopoly are inevitable and present an exciting dynamic across the industry,” adds Puri.
“I can definitely see the notion of coalitions challenging the dominance of Google, Amazon, etc. The question is how in practice disparate businesses can organize themselves to properly present a credible alternative.”
Speaking separately with The Drum, the leaders of two such willing rivals to Facebook and Google do little to veil their apparent willingness to make such purchases hold an appropriate offer make itself available.
Mark Grether, Sizmek, chief executive officer, explains how the platform will always look to strengthen the platform, and doesn’t rule out the prospect of making further purchases in addition to his outfit’s purchase spree of recent years, one that saw it take Rocket Fuel off the public markets in 2017.
Meanwhile, Ted Hastings, RhythmOne, chief executive officer, likewise explains how the outfit’s ambition to rival some of the large names in the sector means his outfit’s desire to purchase new point solutions hasn’t abated.
When quizzed on the potential for more M&A activity, he adds: “The short answer is yes, and we’ll continue to evaluate deals. The last deals such as RhythmOne, and the pending YuMe one were on the demand-side, and the things we are looking at now are companies more on the supply-side, giving us access to premium supply to better balance both sides of our exchange.”
The fallout of ITP and GDPR implementation?
Kawaja goes on to stipulate his belief that the dual rollout of privacy initiatives from Apple and the European Union (in the guise of Apple’s ITP and the EU’s GDPR) will likely spur less aspirational M&A activity in 2018.
“Both point in the same direction and that’s away from the anonymous cookie,” he adds.
“The whole marketing world is moving towards marketing to known people, and what’s very clear is that because of technology legislation or moves from browser companies is that you have to know the company [to target] and the user has to agree… We think this will have a very substantive impact.”
However, Media IQ’s Puri believes players seeking such an exit will likely meet with difficulty. “Any business that looks set to 'fall down' when the GDPR legislation comes into effect would very, very quickly be picked up in due diligence. Time for the fire sale unfortunately for some may have already passed by,” he concludes.