Home On The Ecosystem Luma And JEGI: Ad Tech Companies Shouldn’t Bet On A Chinese Buyout

Luma And JEGI: Ad Tech Companies Shouldn’t Bet On A Chinese Buyout

SHARE:

luma-jegiAre the Chinese buyers that have been feasting on Western ad tech companies just starting on their appetizers?

Eastern buyouts marked the biggest shift in merger and acquisition (M&A) activity in the ad tech space this past quarter, said Terry Kawaja, CEO of Luma Partners, which released its Q3 M&A report on Friday.

“What’s been interesting is it’s not just domestics, but also the foreign guys,” he said. “We have more [deals] in the weeks and months to come which I think will turn a lot of heads.”

Some of these deals were led by Chinese consortiums on the hunt for US companies, which are much cheaper than those in their own markets. Despite going after little-known companies, these buyers have high standards in their purchase decisions, Kawaja said.

“[Media.net and AppLovin] were exceptional in terms of their financial performance and unique positioning,” he said. “If you’re a me-too company in terms of how you make money, that wouldn’t be attractive to Chinese buyers.”

While Luma’s report considered the “most relevant” deals in the space, JEGI offered a more zoomed-out view in its Q3 2016 M&A Overview, also released on Friday. According to Co-President Tolman Geffs, Chinese buyouts are just “a cherry on the cake” of all M&A.

“We’ve handled several discussions in that area, but it’s not a material portion of the overall M&A,” he said.

The current investment climate is challenging for ad tech firms, with VC funds and big-spending acquirers generally scarce despite the uptick in buyouts. Some ad tech companies are trying to rebrand as mar tech, which has more appeal to strategic buyers such as enterprise software giants and telcos.

“On the one hand it’s death and carnage, and on the other it’s all chocolatey goodness with high valuations; what determines whether [a company] sells for good or capitulates?” Kawaja said. 

According to JEGI, deal valuation rose 75% across the board in the past year, driven in part by media and marketing-sector acquisitions such as Microsoft’s $26 billion deal to buy LinkedIn and Dentsu Aegis’s $1.5 billion purchase of Merkle. Marketing services and technology was the second most active sector, with 471 transactions valued at $32.7 billion.

“Mar tech gets a much better valuation,” Kawaja said. “If you think about a world where you’re marketing to known users in a completely lit environment, issues [like ad blocking, fraud and viewability] all kind of get solved.”

Subscribe

AdExchanger Daily

Get our editors’ roundup delivered to your inbox every weekday.

CRM companies and cloud providers like Oracle, Adobe, Salesforce and Merkle are liked by investors because of their first-party data connections.

But rebranding an ad tech company as mar tech can be like putting a lipstick on a pig.

“All I have to do is ask three questions and I can tell what your business model is,” Kawaja said.

Geffs agreed. “Last year was, ‘Hey we’re a SaaS company,’” he said. “Now it’s, ‘Hey, we have a customer success team.’ Really, you’re just services business in denial.”

Must Read

AWS Launches A Cloud Infrastructure Service For Ad Tech

AWS RTB Fabric offers ad tech platforms more streamlined integrations with ecosystem and infrastructure partners, allegedly lower latency compared to the public internet and discounts on data transfers.

Netflix Boasts Its Best Ad Sales Quarter Ever (Again)

In a livestreamed presentation to investors on Tuesday, co-CEO Greg Peters shared that Netflix had its “best ad sales quarter ever” in Q3, and more than doubled its upfront commitments for this year.

Comic: No One To Play With

Google Pulls The Plug On Topics, PAAPI And Other Major Privacy Sandbox APIs (As The CMA Says ‘Cheerio’)

Google’s aborted cookie crackdown ends with a quiet CMA sign-off and a sweeping phaseout of Privacy Sandbox technologies, from the Topics API to PAAPI.

Privacy! Commerce! Connected TV! Read all about it. Subscribe to AdExchanger Newsletters

The Trade Desk’s Auction Evolutions Bring High Drama To The Prebid Summit

TTD shared new details about OpenAds features that let publishers see for themselves whether it’s running a fair auction. But tension between TTD and Prebid hung over the event.

Monopoly Man looks on at the DOJ vs. Google ad tech antitrust trial (comic).

How Google Stands In The DOJ’s Ad Tech Antitrust Suit, According To Those Who Tracked The Trial

The remedies phase of the Google antitrust trial concluded last week. And after 11 days in the courtroom, there is a clearer sense of where Judge Leonie Brinkema is focused on, and how that might influence what remedies she put in place.

The Ad Context Protocol Aims To Make Sense Of Agentic Ad Demand

The AI advertising agents will need their own trade group eventually. For now though, a bunch of companies are forming the Ad Context Protocol, or AdCP.