What Will Drive the Next Wave of M&A in Mar Tech?

After a relatively quiet 2018, last year was a pretty boisterous party for mar-tech mergers and acquisitions. [article_summary section="1"]Driven by legacy television players, like AT&T, eager to get ahead of the fast-emerging connected TV sector and midmarket players pooling their fortunes, Luma Partners found, the number of media and mar-tech deals jumped to 351 in 2019, up from 258 the previous year. With the calendar flipping to a new year, some execs are hoping brands eager to future-proof themselves against digital native interlopers will spur similar exits in the 2020s. [kickout id="1"] Luma's report also showed how the period was notable for the number of ad-tech exits in excess of $100 million (seven in total in 2019) compared with the previous year when there was only one such deal. These include Roku’s purchase of video-focused demand-side platform Dataxu in a deal worth $150 million, Taboola and Outbrain’s merger in a deal that values the combined entity at $850 million and the $178 million merger of Taptica with RhythmOne (aka Tremor International). A tale of mixed fortunes [article_summary section="2"]However, while the period was characterized by such big-ticket deals, there were arguably just as many fire sales, such as the sell-off that followed Sizmek’s Chapter 11 filing in early 2019. The past 12 months witnessed several other high-profile ad tech casualties, and it can be argued regulation, and the specter of coming regulation, has sped up the the ad-tech shakeout. Luma Partners vp Conor McKenna observed that while the total volume of deals was driven by “capitulation sales” there were also some impressive exits. “That said, 2019 saw the largest number of scaled ad-tech transactions—those over $100 million—of the last three years, with considerable momentum at the end of the year,” he said. Defensive measures from the old guard Luma Partners, a high-profile investment bank in the sector, consulted on some of the period’s more notable deals like the acquisition of Clypd by AT&T’s Xandr in a deal that builds on its acquisition trail of recent years, including its multibillion-dollar purchase of AppNexus in 2018, as it seeks to modernize its ad offering for media buyers. Such deals are typical of legacy TV players maneuvering to protect their stake in the ad game as Big Tech players such as Amazon, Facebook and Google eye advertising budgets traditionally reserved for broadcast media. While such measures have also come in the form of “big media consolidation,” such as the Viacom-CBS merger, another key component in recent years has been purchasing CTV capabilities, McKenna said. He told Adweek to expect more such activity in the near future as well as acquisitions from "other ecosystem players" moving into the space. McKenna pointed to data onboarding company LiveRamp's $150 million purchase of DataPlusMath as indicative of this trend. Midmarket players embrace scale Luma Partners also counseled Rubicon Project during negotiations leading up to its recently announced merger with fellow publicly listed outfit Telaria, both of which had initial public offerings (in 2014 and 2013, respectively) valuing the pair collectively at $860 million. That echoed the mergers of former rivals Outbrain and Taboola as well as the pairing of RhythmOne and Taptica, with many noting such moves are now essential to achieve scale as Big Tech gains more and more share of advertiser spend. McKenna said that while size has always been an important differentiator among small- to midsize tech companies, many that have failed to achieve the necessary scale have fallen by the wayside in recent years. “What we're seeing now is [a] doubling down on scale from strong, middle-market independents in order to take on the large tech platforms,” he said. [article_summary section="3"]A new breed of buyer Meanwhile, brands are starting to purchase mar-tech wares as they look to fend off competition from upstarts such as DTC brands. For instance, McDonald’s paid $300 million for personalization company Dynamic Yield, while Walmart announced it would purchase Polymorph to build out the retailer’s own media offering. Daniel MacKeigan, a partner at Spring Lake Equity Partners, told Adweek retailers have become “net buyers” of technology in recent years. “All of this is an attempt to get on par with or ahead of Amazon,” he said, noting that brands’ increasing interest in taking a more firm grip on their marketing activities, as opposed to outsourcing them to third parties, is introducing mar tech to a potential new breed of buyer. MacKeigan pointed out that much of the interest in acquiring new marketing technologies is driven by legacy players eager to fend off emerging competition. He said many direct-to-consumer companies have their own tech stacks and are able to use such capabilities to differentiate themselves from the more established. [kickout id="3" label="US media"] Don’t expect unicorn deals Robert Webster, co-founder of consultancy firm Canton Marketing Solutions, told Adweek that while brands are increasingly in the market for tech, it's unlikely to result in blockbuster deals. "Things like in-housing and data legislation mean that brands need to be able to better coordinate their data,” Webster said. “Because if you get it wrong, you get sued. So this is why things like CDPs [customer data platforms] are likely to be interesting for buyers." He went on to say, “I don’t think it will produce deals in the billions of dollars range, but you could probably see a large corporate paying in the range of tens of millions for midmarket players.” Luma Partners’ McKenna said it's hard to predict whether brands purchasing marketing technology will spur another sales boom similar to the early- to mid-2010s, as such instances tend to be for very specific use cases. “However, what this does speak to is how powerful and wide ranging these data/personalization platforms can be, which allows for the right brands to profit off bringing them in house,” he said. Like Webster, McKenna predicts CDPs will be of interest to such players, especially in a post-GDPR and -CCPA world. "Much of the impact from the data regulations and privacy concerns have been on restrictions of third party data," he said. "Broadly speaking, CDPs are helping marketers take control of their own [first party] data, better understand/sort it and make it actionable. From this regard, CDPs actually become more vital in light of the exogenous data/privacy challenges."

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What Will Drive the Next Wave of M&A in Mar Tech?

Can a new breed of acquirers breathe life into a fluctuating market?

Ronan Shields

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