Investors may be rare in ad tech these days, but that doesn’t mean the same is true for deals. There is still a lot to do. Not just for the right price, but increasingly for the right investor. Namely, the strategic ones; those who are not just in it for the money.
For many of these companies, it’s a good time to put their business development teams to work.
There are fewer private equity investors to compete with, to begin with. And many of these strategic investors are currently sitting on millions of dollars of uninvested funds. Better to put that money to work, they think, because organic growth is so hard to come by these days. Look to the recent flurry of business activity for proof.
Publicis Groupe believed that the old ways of running a profitable advertising business were still the best. So it acquired affiliate network Vivnetworks earlier this month. Ad filtering company Eyeo doubled down on its safest business model – a two-sided deal – when it bought a company that helps publishers recoup revenue lost to ad blocking a few weeks ago.
If that wasn’t enough of an indication of the deal dynamics in ad tech, MiQ is also on the lookout for companies that can bolster its business with an influx of capital into the business. Speaking of strategic opportunism, Samba TV dabbled in artificial intelligence startup Disruptel earlier this month.
The list continues. Criteo, S4 Capitali, Lumen, Cavai, Ascential and OpenWeb to name a few. Different names, same story: deals made by companies that have weathered the recession relatively well so far, as their stock prices have held up and their balance sheets remain strong.
Expect more, not less, of the same next year. That forecast came out loud and clear at an event hosted by investment firm First Party Capital earlier this month. The logic here is quite simple: slowdown or not, as long as a deal remains accretive, it will be one of the fastest ways to increase market share in existing areas or expand into new ones.
“Now is the time for these companies to go on the offensive,” said Joshua Wepman, managing director of technology investment banking at Houlihan Lokey at the same event.
That doesn’t mean the M&A boom times are back. The scarcity of offers put an end to that. Instead, the hot acquisition vibes that engulfed the previous M&A cycle in ad tech have been replaced with something more measured. Remember that few companies can afford to make big bets in the current economic and regulatory climate.
Sure, Criteo’s bet on ad-tech developer IPONWEB is undoubtedly a big bet, but it’s an outlier in a series of smaller acquisitions and strategic partnerships this year. The additive, not the transformer, seems to be the underlying rationale for many of the transactions these days.
It’s certainly for companies like Publicis that have focused recent M&A efforts on older marketing efforts, knowing that marketers will continue to spend money.
Of course, tried and true isn’t the only avenue for companies on the acquisition trail. Other investors like Integral Ad Science and Azerion are making calculated bets on how ad dollars will fall once the market crashes, considering areas of the day like CTV, retail media, gaming and identity as investment opportunities.
Combine all of this with the fact that the UK government’s now infamous ‘mini budget’ has resulted in lower price expectations for sellers and a broadening of buyers’ view of value, and it’s clear that it’s a more pragmatic wave of mergers and acquisitions.
Keep in mind that this is a liberal use of the word “pragmatic” given the actions taken by venture capitalist and ad-supported entertainment company Azerion. So far this year, it has closed eight deals, continuing a buy-and-build strategy it has employed since its inception in 2015. For Azerion dealmakers, the pace of mergers and acquisitions remains high and l funnel is full.
“The mindset in the market has gone from a mindset where it was hard to get real, concrete deals because of the high valuations to a mindset where people want to get deals now rather than waiting to see how the economy develops,” said Joost Merks, group chief investment officer at Azerion. “It’s been more noticeable since the end of the summer.”
But the fun doesn’t stop once the deals are done and dusted off. There is the thorny challenge of integration to be met. This is far from simple for buyers. There are too many dashed hopes and melancholy headaches to say otherwise.
“Transparency and trust are key to a successful integration because it all starts with the willingness of both parties to open the kimono,” said Grayson Lafrenz, founder and CEO of Power Digital, which recently closed four deals. “There are a lot of companies that don’t do that. They are very transactional in that they close the deal and then move on to the next one. Once an agreement is reached, the work has only just begun. You have to make sure that the thesis comes true.
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