‘A function of confidence’: Uncertainty casts a shadow over M&A deals

Dealmaking has been rife in the media and ad sectors in recent years as the market consolidated around fewer, more powerful players. But as the coronavirus hit, many companies have pulled the brakes on their acquisition plans.

Save for one or two processes that were due to complete soon anyway, the majority of investment bank Luma Partners’ upcoming deals are on pause “which is perfectly understandable while people are thinking about what the hell is going to happen to the world,” said Luma Partners CEO Terence Kawaja.

“M&A is a function of confidence,” he added. “Uncertainty is not the friend of deals.”

The first three months of the year were already a particularly slow quarter for M&A in the U.S. media and martech space before the coronavirus crisis really took hold. The total number of deals taking place was down 40% in the first quarter of 2020 compared with Q1 2019, according to LUMA Partners.

The prolonged coronavirus crisis has shifted the entire M&A process online. Out with the handshakes and long lunches and in with the Zoom invites and digital secure document signing.

“We have whole roadshows going on via video at the moment, where people do engage and plan for it properly,” said Simon Nicholls, partner at advisory and investment firm GP Bullhound. A question lingers: “Will people invest in companies and complete deals without having ever met them face to face?”

For deals in the earlier stages, it’s now important to remain flexible to keep the process ticking along, according to Roddy Moon, managing director for the technology, media and telecoms group at KPMG Corporate Finance.

“Firm bid deadlines are going out of the window,” said Moon. For example, when KPMG sent information memorandums out to prospective investors for one of its deals on Mar. 16, the bank opted not to include the bid process letter as usual.

“You’ve got to give people more time,” Moon added. “There’s a lot more guiding through this time period. Normally you reserve the business updates you do in a normal process because you don’t want to create unnecessary noise, or give imperfect information.” In such a fast-moving situation, it’s now important to over communicate.

For companies that have substantial capital, there is some upside to the unfolding coronavirus situation as it wears on: It’s a buyer’s market. Companies in more precarious financial positions, which are burning through cash, may be forced to sell in capitulation deals. And if companies file for chapter 11, acquirers can cherry pick the pieces they want at bargain prices. Bankers said they also expect private equity firms to continue to be active dealmakers in the media and marketing space this year — though bigger acquisitions that require leverage are mostly on hold.

Some deals in the advertising and media space that were already close to the finish line are continuing — albeit at different timescales — M&A experts said. Taboola’s planned acquisition of Outbrain, announced in October last year, is currently being probed by the Department of Justice’s antitrust department, The Wall Street Journal reported last week. A person familiar with the process confirmed the DOJ was looking into Taboola’s assertions that it competes for ad dollars beyond the narrow content recommendation space and with larger digital players such as Google and Facebook.

The CEOs of ad tech companies Rubicon Project and Telaria are thanking their lucky stars that their transaction kicked off at the turn of last year, rather than in 2020 as the global coronavirus pandemic began to escalate.

The deal, described as a merger — although Rubicon now owns the majority of the combined company’s shares — was announced in December and officially closed last week.

“I imagine if we had started the conversation in January and the deal wasn’t done, both boards would say, ‘It’s still a great idea, but boy! Muscle through this storm and let’s talk about it [after],” said Michael Barrett, Rubicon Project CEO. “We were extraordinarily fortunate it was signed, sealed and delivered into it, rather than trying to gestate into it.”

Still, that’s not to say the pandemic hasn’t been disruptive for the combined entities. At a macro level, advertising spending has cratered, stock markets have tumbled and there’s the human aspect of keeping employees safe to consider. More specific to this deal, Rubicon and Telaria’s sales and marketing approach as a unified company has been delayed. The company had planned to reveal its new name in the coming months and use the Cannes Lions Festival in June as its main marketing launchpad. Cannes organizers Ascential said last week the festival will not take place this year.

With $140 million in cash on the balance sheet, the new Rubicon-Telaria plans to make further acquisitions down the line.

“A lot of small, pre-revenue tech tuck-ins that couldn’t make it are going to be incredibly cheap,” said Mark Zagorski, former Telaria CEO and president and COO of the combined company.


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