The volume and scope of ad tech/marketing tech M&A activity in 2015 shows investors want in on marketing stacks with scalable infrastructure that can support programmatic growth and increased automation of marketing functions, says a duo of investment firms.
Such were the findings in reports from The Jordan, Edmiston Group (JEGI) and Petsky Prunier. The flurry of activity builds on an expansion cycle that’s persisted for several years, according to John Prunier, a partner at Petsky Prunier. A strong US economy and an abundance of investment capital have bolstered growth.
Standout ad tech deals, in terms of price, include Twitter’s $533 million acquisition of online predictive marketing platform TellApart, Kantar/WPP’s $244 million investment in comScore and Rubicon Project’s $116 million acquisition of ad platform Chango.
“Long-term trends like growth in ecommerce and the use of mobile devices as well as dramatic shifts in video consumption behavior are creating industries unto themselves,” Prunier said. Consider Pitney Bowes’ $488 million acquisition of ecommerce solutions provider Borderfree and Verizon’s $200 million purchase of Internet TV service-focused OnCue from Intel.
He added that data management – “increasingly fundamental to multiple parts of any vertical or functional value chain” – also drives growth investment and M&A activity.
Building these capabilities in-house is often slow, Prunier explained.
MasterCard bought cloud-based analytics provider Applied Predictive Technologies for $600 million, for example, and information infrastructure provider Hitachi Data Systems snapped up business intelligence solutions provider Pentaho for $500 million.
“For a while we’ve had a large number of companies doing things because it could be done ahead of scaled-up market demand,” explained Tolman Geffs, co-president at JEGI.
“Suddenly, there is a lot more commercial demand and a lot more M&A in the sector,” said Geffs. “It’s a lot of ad tech meets marketing tech. This trend will continue. We’re still in the second inning of the automation of marketing.”
Petsky Prunier reported 1,640 M&A and investment transactions in the first half of 2015, of which 1,028 totaled $59.1 billion (compared to 2014’s first half, which totaled 1,469 at $49.1 billion) across digital media/commerce, digital advertising, marketing tech, agency and marketing services and traditional media. The data details that digital ad M&A activity was driven by 11 digital video transactions and 22 online lead-generation deals.
JEGI counted 1,125 total transactions in the first half, with total deal volume amounting to $53.7 billion (compared to a year earlier, when there were 1,078 first-half deals at $56.3 billion). The firm counted 278 marketing services and technology deals amounting to $12.7 billion. Acquisitions in the traditional agency, digital agency and marketing tech subsectors accounted for more than half of transactions in the quarter, according to the data.
The sustained high volume of M&A in the digital ad and marketing sectors could be changing entrepreneurs’ and investors’ long-game strategizing, according to Prunier.
“We have arrived at a time where there is a generation or two of entrepreneurs and executives working – in partnership with venture investors – to create companies with an eye toward selling them as soon as the opportunity exists,” he said. “This engineering-financial complex is accelerating the velocity of the stages between corporate formation and liquidity.”
Prunier added that a prominent sign of that market transformation is volume of buyouts and late-stage investments.
“Investors like KKR have begun to write checks for early-stage companies in recognition that equity appreciation events are occurring sooner than buyout firms can participate in them,” he said.
But the sustained period of growth is also making investors wonder how much longer the cycle will last, Prunier cautioned. And Geffs said that despite ongoing investment in ad tech and infrastructure, marketers and agencies are clamoring for better ways to measure their campaigns.
“ROI and measurement are always a challenge,” said Geffs. “The big marketers and agencies aren’t going to do something at scale until they know it works. Measurement and ROI is a critical missing link.”
Looking ahead to the second half, Prunier predicted sustained M&A activity in the tech services sector in particular, where he said firms are finding value.
“The growing scale of many of the largest services companies has fueled their ambition to expand their capabilities in high-growth segments and to migrate up the value chain,” he said.
“Partner channels for many leading application technologies are benefiting from growing adoption of these platforms and the opportunity to integrate them as well as manage campaigns or other forms of client expenditures related to them,” he said, adding that CEOs and boards will continue to exhibit confidence in the value of tech service buys “as a source of long-term growth and shareholder returns.”