Ad tech’s movers and shakers are readying a resurgence of M&A activity

However, the deals themselves are not the only important aspect; it’s the overall atmosphere surrounding them.

This time last year, deals were overshadowed by rapid interest rate hikes and a barrage of external factors, from the collapse of Silicon Valley Bank to economic concerns.

Flash forward, and the vibe’s flipped: public companies are sitting on substantial cash reserves, private equity investors have ample dry powder to deploy, and borrowing costs remain stable.

Green shoots of M&A activity?

All signs indeed point to a resurgence in M&A activity, though the timing and pace remain subject to debate. 

Some anticipate a ramp-up in the second quarter, while others foresee it happening in the latter half of the year onward. Whenever it occurs, it’s unlikely to be a typical boom. The market has grown more complex, requiring dealmakers to be nimble as they navigate this evolving landscape.

“We’re at the term sheets stage for two separate acquisitions,” said an exec at a global ad tech business who spoke on condition of anonymity because they were not authorized to speak to Digiday.

Sure, term sheets aren’t handshakes, but they’re a clear sign: ad tech’s movers and shakers are busy behind the curtain.

And just how active are they? Well, one need only glance at the multitude of rumors circulating at present. 

Executives, both informed and speculative, are tipping privately-held companies such as InMobi and MiQ or even publicly-listed outfits such as Verve Group or Viant as potential players in the deal hunt.

Even if no moves are made with these companies specifically, just dropping their names stokes the flames of deal anticipation–aided, of course, by active bankers.

“External data is hard to find, but our market conversations show that selling companies have been appointing bankers to prepare for a sale process, but that’s an open-ended process,” said Charles Ping, managing director at Winterberry Group.

Whatever’s simmering behind the scenes is set to diverge from the bombastic, blockbuster buys of previous M&A waves. Instead, anticipate more strategic, snug acquisitions aimed at filling specific needs in areas like CTV, retail media, addressability, and sustainability. 

“The days of crazy valuations are going to be few and far between,” said Abeed Janmohamed, founding partner of growth consultancy Volando.

Take the AdTheorent deal, for example. Cadent snagged it for $324 million — a far cry from its $1 billion valuation back in 2021.

“There will still always be those outliers that command the big valuations, of course; it’s just that there won’t be as many of them,” said Janmohamed. “These deals are scrutinized more nowadays.”

That says as much about the thesis for upcoming deals as it does discipline behind them. 

“After a tough 2023, there’s going to be a lot more diligence done by potential investors and tighter deal structures,” said Janmohamed. “The market has shifted.”

And with it, the very dynamics driving recent M&A frenzies have evolved. 

Now, financiers—not just operating partners at PE firms — are taking the lead. Expect a variety of deal structures and increased emphasis on strategic alignment and post-merger integration plans.

As the dust settles, the market will appear smaller. Consolidation has long been overdue in the ad tech sector, where smaller players struggle, and economies of scale favor larger firms. Fragmentation and regulatory pressures complicate matters while emerging technologies demand significant investment. 

And let’s not forget one of the major drivers behind this consolidation: the end of widespread granular tracking.

According to Bob Walczak, CEO of MadTech Advisors, the pending deprecation of third-party cookies is inevitably a contributory factor as the industry attempts to wean itself off its reliance on third-party data. 

“It’s a forcing factor in M&A today… You ask yourself if you’re going to redouble your effort and convert your business to a first-party data-powered business for the next evolution, or is it time to get out ahead of that turn?” he told Digiday.

Walczak further explained his opinion that those companies positioned well for an industry that will default to first-party data, such as alternative ID or data clean room providers, are likely acquisition targets.

The alternative is to reinvest, i.e., “build rather than buy,” although if deals need to be made, the former option can prove attractive, especially if there is the option of taking publicly listed candidates private.

In its Full Year Market Report for 2023, investment bank LUMA Partners tipped an uptick in deal volume before the close of the current calendar year (compared to the previous two) with CTV retail media specialists also likely to prove popular.

MadTech Advisors’ Walczak points to the latest deal between Nasdaq-listed AdTheorent as indicative of another phase of industry evolution, namely the convergence of digital and TV advertising, particularly as CTV players look to attract SME ad spend. 

“I think the AdTheorent and Cadent deal is to create more of a comprehensive solution provider,” he told Digiday, explaining how the acquisition will complement Cadent’s heritage as a brand service provider for brand advertisers. 

“AdTheorent provides for more of a mid-market agency; they are performance-based and work to that model, which makes a lot of sense,” Walczak added, “particularly as you see the likes of Netflix and other streaming providers [offer ad services], so you need to have more powerful systems that can offer just ad campaigns.”

Back to private ownership?

Meanwhile, other sources pointed to how Cadent and AdTheorent’s deal; an all-cash transaction valued at $3.21 per share, with Moelis & Company acting as Cadent’s leading financial advisor–represented a significant fall-off from the peak valuation days of 2021.

Taking AdTheorent private is subject to customary approvals, and the deal represents Cadent’s first purchase since its August takeover by PE firm Novacap — which reportedly valued it at $600 million. 

Some point to how the $324 million valuation is some way off AdTheorent’s $1 billion valuation immediately after its 2021 merger with special acquisition company MCAP Acquisition, a route to the public markets that soon lost favor. 

Such parties estimate that ‘zombie ad tech companies, i.e., those valued significantly under $1 billion, are persona non grata on the public markets, especially as such companies are unable to maintain the growth rates they saw in the immediate aftermath of the Covid-19 pandemic.  

One source, who asked not to be named due to their employers’ comms policy, commented that any ad tech company from this cohort trading significantly below $10 per share is likely to be considered an acquisition target at a similar discount. 

“We can all speculate as to where there was a boom in 2021,” said the source, citing ‘comparatively ‘cheap money’ and the SPAC-craze of that time, “but unless you are in a special area like AI, then your valuations are going to return to return to what they were in 2017-19.”