2022’s dealmaking is already underway, will it be a year of smaller, better, cheaper?
One safe prediction for 2022 is that there’ll be more dealmaking in the ad tech sector. Mergers and acquisitions are continuing at a relentless pace after the bumper year that was 2021, but there will be fewer, larger deals left to be done.
Many of the splashiest companies have been snapped up, while those that wanted to go public have either done so or are well on their way. It also doesn’t help that ad tech bosses have a laundry list of distractions to keep them from these deals: growing scrutiny from advertisers, more competition among publicly traded companies for media dollars, the knock-on effect of inflation to name a few.
The window for deals is open but not as wide as it was last year when there was a glut of hairy, strategic moves made.
The deals so far …
Expect more deals like those that have already been announced since the turn of the year: Integral Ad Science acquired Paris-based content classification company Context, Human (formerly White Ops) raised $100 million, and now Magnite has acquired Nth Party, a startup specializing in secure audience data-sharing and analysis. Meanwhile, social marketing company Smartly.io this week announced it’s writing a $100 million check for Ad-Lib.io in a bid to broaden its competencies on the Google marketing stack.
They’re all less glamorous than the flurry of activity that defined 2021 but more focused. The rate of ad tech companies debuting on the public market, on the other hand, is likely to cool. In fact, they have been doing so ever since the fall. There were only three companies to go public during the third quarter versus 15 over the first, per investment bank Luma Partners.
“You’re already starting to see the makeup of acquisitions shift toward smaller deals,” said Abeed Janmohamed, founding partner of growth consultancy Volando. “Based on the conversations we’re already having, it wouldn’t surprise me if deal sizes continued on this trajectory where they pursue deals that are more capability and people-focused. The reality is a lot of these larger companies already have the back office functions sorted and have already covered off the areas where they can drive economies of scale.”
Not to say there isn’t scope for bigger deals. Microsoft’s purchase of Xandr proves otherwise, as does MediaMath’s exploration of a potential sale that could result in a behemoth. Given the fragmented nature of the ad tech industry, the need for continued consolidation still exists.
Bifurcation of the open web
Ciarán O’Kane, CEO WireCorp, and general partner at start-up investment fund First Party Capital told Digiday that one impact of the latest wave of ad tech M&A will be the erosion of scaled audience buys across the open internet. He further predicted this will result in a bifurcation of the open web. In one camp there will be “utility publishers” that will seek to outsource their ad tech capabilities, while more mainstream publishers will seek to operate as “mini walled gardens.”
Utility publishers’ needs will drive funding
O’Kane defined “utility publishers” as media owners that have troves of first-party data, albeit, without the scale of household, legacy media brands that have historically relied on the ad-funded business model. This ‘new’ cohort of media owners is likely to deem advertising as a potential “nice add-on” and therefore likely to continue to outsource their ad tech.
Such publishers are more likely to partner with outfits such as Kevel — a company whose website claims it users APIs to help companies including Ticketmaster, WeTransfer, and Yelp — to bolster monetization either through ad serving or the placement of native ads or sponsored listings.
Certain financial backers are placing their bets on such ad tech companies with the fact that Kevel raised $10 million in Series B funding, led by Fulcrum Equity Partners, last month evidence of such a mindset according to O’Kane.
One significant impact of the creeping privacy laws around the globe is the challenges they pose to media-buying teams when it comes to implementing audience-led campaigns at scale, outside of the walled gardens of Amazon, Facebook, and Google, that is.
The rise of ‘mini walled gardens’
However, publishers, and ad tech companies, will look to plug this gap, by forming their own “mini walled gardens”, according to O’Kane, who predicted the subsequent return to contextual advertising will spur further M&A deals this year. He described the current dynamics facing the market as “a funny reversion”, albeit a data-driven one, whereby the ad-supported internet is starting to resemble a series of “mini walled gardens.”
The trend is already underway when we think of M&A deals of recent years such as how Smart Adserver, a company that historically operated on the sell-side of the industry, purchased demand-side platform LiquidM in late 2019 in a bid to gain greater visibility of the market’s pricing dynamics. “We’re probably going to see is a fall back to contextual [media buys],” added O’Kane, “we might see a lot of publishers look to buy ad tech in order to build their own solution, and then sell that into the agencies.”
Given that Google is less than two years away from retiring third-party cookies, the historic connective tissue of programmatic advertising, the temperature is ratcheting up, resulting in a climate that could be ripe for dealmaking among many publishers’ minds. And with marketers increasingly voicing their eagerness to reduce their reliance on Big Tech’s walled gardens, 2022 could see publishers act on this impetus to buy ad tech that’s available, as long as the price is right.
Smaller, but more valuable, deals?
While legacy publishers may have a checkered history with ad tech, some believe they may be in the market for smaller acquisitions to build their own. “I think the blockbuster acquisitions [of $500 million-plus] may be a thing of last year,” added O’Kane. “So, maybe we won’t see big ad server acquisitions, but we could see them in the market for tools that can help with first-party data aggregation.”
Ana Milicevic, co-founder, and principal at consultancy firm Sparrow Digital Advisers agreed with O’Kane’s assertion that the ad-funded internet is reverting back to a series of mini walled gardens. She pointed to two of 2021’s “lateral deals” — Microsoft purchasing Xandr from AT&T, and AppLovin acquiring MoPub from Twitter — as prime examples of this.
“Here you take an asset from one company, and you migrate it somewhere else where it makes a little more sense and then you make a new value proposition on top of that,” she said suggesting that Microsoft could look to utilize Xandr as the monetization platform for its string of media properties.
Although, as 2022 kicks into gear, she tipped smaller companies that have brought a new perspective in emergent, or relatively “forgotten” areas, as potential acquisition targets with companies that have innovated in campaign optimization or emergent platforms as potential targets for buyers.
“There’s a lot of M&A to be done,” she added. “I’m very bullish on under-explored areas such as digital out-of-home and those that can help with automation in narrow-cast advertising such as podcasts, and the same goes for those that can help with sponsorship of email newsletters.
In addition, she cited the creative optimization space as a potential area for M&A in the space, pointing to Celtra’s purchase by private equity outfit Symphony Technology Group in late 2021 as an example.
“Look at areas such as automated creative testing … this has been a very forgotten arena for a while” added Milicevic. “I just think there’s a few of the leading players in a load of those categories that haven’t been challenged in a while, and I think we’re going to see a lot of activity in those areas.“
Of course, then there’s CTV …
And that’s not to forget the rise of CTV, a sector of the industry that kept investment bankers busy in 2021 and will likely occupy the time of M&A lawyers in 2022, but at a (slightly) diminished rate, according to some.
For evidence of just how hot a ticket CTV is, we need only look at how newly minted public ad tech companies made it a priority last year. Outbrain purchased Video Intelligence for $55 million, while measurement rivals DoubleVerify and Integral Ad Science respectively purchased Openslate ($150 million) and Publica ($220 million) within months of their IPOs.
Speaking with Digiday last year, Elgin Thompson, managing director, technology investment banking at JMP Securities, recounted how CTV is the “number one topic in ad tech right now.” Companies that can provide advertisers with holistic measurement of the ROI of their CTV spend will prove attractive, added Thompson, tipping outfits such as Pixability and Zefr as potential acquisition candidates.
“These companies need the full stack to help advertisers identify the metrics and goals then help them craft their story,” he said, “that’s a theme that the market is paying attention to.”
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