Luma Partners’ Brian Andersen Lays Out Ad Tech’s M&A Potential In 2018

Luma Partners’ Brian Andersen will speak at AdExchanger's upcoming Industry Preview conference on Jan. 17 - 18, 2018 at the Grand Hyatt New York. 

2018 will see the same amount of deal activity as 2017 as the field of potential buyers expands, predicts Luma Partners’ Brian Andersen.

The ad tech acquirers are much different from when Andersen joined Luma seven years ago. Google has virtually disappeared as a buyer. And Chinese buyers have left since last year, but private equity buyers keep coming.

Telcos have become ad tech acquirers themselves. AOL and Yahoo, which bought many an ad tech company, became part of Verizon and are now part of a group called Oath. Altice bought Teads and Singtel bought Turn in 2017. And if its Time Warner deal goes through, AT&T might build an advertising business to rival its biggest competitor Verizon.

While marketing clouds and private equity firms will continue to snap up ad tech or mar tech in 2018, customer data platforms (CDPs) are emerging as acquisition targets, as they attempt to unify customer analytics.

AdExchanger spoke to Andersen about his predictions.

AdExchanger: Will the big broadcasting roll-ups, like AT&T-Time Warner, Disney-Fox and Discovery-Scripps Networks, create a new class of ad tech buyers?

BRIAN ANDERSEN: You will see additional deals from broadcasters. Part of this is driven by where consumer time is going. If they don’t invest in that direction, they will become irrelevant.

AT&T and Time Warner is a massive deal that now needs to go through the legal process to be consummated, so that could delay them. But AT&T’s biggest competitor is Verizon, and Verizon has been making a big push into advertising with their Oath business. They are building up a team who are leading experts in digital advertising.

They hired Brian Lesser, and he hired Kirk McDonald. And you have Nexstar, which hired Tony Katsur and former Rubicon President Gregory Raifman [and acquired LKQD this month].

Rubicon CEO Michael Barrett said his company anticipates consolidation in the exchange space. What do you think happens to SSPs in 2018?

That’s a tough one. 2016 is really where you started seeing significant disruption of the sell side in advertising. It was Q2 2016 when Rubicon stock dropped 40% due to them claiming they missed due to header bidding. The market is still settling out. I agree with Michael, I think there will be a shakeout of vendors in the category.

To truly enable that to happen, the market [must] settle out more, because there is so much movement. Rubicon’s take rate has gone from 24% to 10-12%. The market needs to firmly understand where this is going to settle out before there are a lot of big bets made.

What’s the most likely outcome for SSPs? Combining with each other, becoming part a stack with a DSP or being bought by a publisher?

That’s the question of the day. There is always the case, in pretty much every industry, where consolidation will make sense. You can rationalize expenses and take the best of both companies.

When you look at a lot of studies on M&A, the type of acquisitions that typically have the highest ROI are consolidation plays, and that’s because the buyer knows the business so well their eyes are wide open when they are moving forward with an acquisition.

You could make a case for consolidation within the sell side, but the biggest players have capabilities and would want to connect all the way across. I could argue both of those are possibilities, and we could see both of those situations in the near future. Right now I don’t see a publisher buying an SSP.

What about M&A in the DSP category, which is dealing with huge increases in tech costs?

We advised on three DSP deals this year: Turn, Adelphic and Simpli.fi. When you look at those transactions, while lumped together, they’re very different. Turn was acquired by Singtel to become their programmatic pipes and power their advertising business, because they had good assets but were weaker on the programmatic side.

Simpli.fi has been profitable for several years, and it’s a terrific business. Their focus has been on arming the local market, which is as big as the national market, by giving Nexstar and Gannett sales forces the ability to layer on a geotargeted video campaign for an auto dealer using Simipli.fi.

In the DSP category, are there logical acquirers – or a specific type of company that might get snapped up?

Yes. There are definitely additional buyers out there. It’s a little hard to provide more detail.

As Amazon continues building out its ad tech stack, will this compel competitors like Walmart to acquire more capabilities?

Of the players out there, you stated the one that is the highest probability. They have the DNA and the assets and a ton of data they could utilize in a similar way to Amazon. I always think of Amazon advertising as attacking the duopoly and look at them in that direction.

So is Walmart going further into ad tech probable or improbable?

They obviously have been doing a lot of acquisitions, but they are core retail acquisitions, Jet being the biggest one, but also Bonobos, Modcloth, Moosejaw and Shoebuy. Going into the advertising market in a bigger way makes sense. Whether it’s a 2018 event – I have no idea.

Last summer, you were bullish on measurement M&A. Since then, DoubleVerify has been acquired. Will there be more acquisitions of measurement companies?

I’m bullish on customer data platforms. When you are pulling together multiple data sources, normalizing that data and getting to a single source of truth by each consumer, there are interesting things you can do from an execution standpoint.

If you continue the evolution of the market beyond CRM and DMP systems to manage data, where people-based marketing has exploded on the screen, you see systems like CDP emerge to provide a single view of the customer.

Who are the CDP leaders right now? 

It’s a really early market. You have ecommerce-focused vendors. BlueCore recently raised money. You have others that have been around a little: AgilOne, Blueshift, SmarterHQ. We categorize BounceX in there, as they have similar capabilities in unifying data sets and using that to send triggered emails.

Then you have companies not focused on commerce, like Lytics, or companies that are more about moving or extracting data like mParticle, Segment and Tealium, so those are being classified as CDPs even though the founding principles are different than those focused on creating a single view of the consumer.

Because of the interest in this category, a lot of companies are now calling themselves CDPs.

There were a lot of companies that wanted to call themselves DMPs that weren’t, or ad networks that wanted to call themselves DSPs because they would have higher valuations. You have the same thing going on with CDPs.

A CDP is still being defined in the market. Many companies calling themselves CDPs can absolutely do that. They are extracting customer data and creating more value and providing execution capabilities.

This interview has been condensed and edited.

 

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