Last year was a muted one for ad tech exits compared to the rampant activity of 2021, when the pop of champagne corks abounded with deal volume driven by initial public offerings plus mergers and acquisitions.\u00a0<\/p>\n
Investment bank LUMA Partners\u2019 2022 Market Report<\/a> shows the number of deals in the sector almost halved \u2014 from 90 to 56. Albeit, the wider digital media and marketing category actually increased by 2%, from 400 in 2021 to 406 in 2022.<\/p>\n The causes for this overall <\/strong>drop in the number of exits are well evidenced: a downbeat global economic outlook impacting overall ad spend, unprecedented M&A and public listings in 2021.\u00a0<\/p>\n Add to this how the decline in the valuation of those that debuted on the public markets the previous year (down 59% on average, according to LUMA Partners) led to a reduced appetite among potential suitors. Such dynamics meant that deals in the sector were either deferred or outright reconsidered.\u00a0<\/p>\n However, from the comparative low, there are dynamics starting to rekindle a potentially new flow of deals<\/a>, namely the opportunities posed by the potential disruption of Big Tech.<\/p>\n Elsewhere, there is also the potential for taking ad tech companies on the public markets (many of which are priced significantly below their IPO prices).\u00a0<\/p>\n And for those publicly-traded ad tech companies that want to future-proof their Wall Street narratives, purchasing the right bit of tech can help to shore up their stock price.<\/p>\n According to Terence Kawaja, CEO of LUMA Partners, the ad tech sector is at the consolidation stage of its gestation. \u201cEvery industry goes through three phases of new company formation, maturity, and then rationalization and consolidation,\u201d he told Digiday.\u00a0<\/p>\n \u201cWe are clearly in the third phase,\u201d said Kawaja, adding that this period makes it a prime investment prospect for \u201clater-stage financial investors,\u201d particularly private equity.\u00a0<\/p>\n One recent example is Bridgepoint Development Capital \u2014\u00a0part of Bridgepoint Group, which took a majority stake in fellow ad tech company MiQ in late 2022<\/a> \u2014 taking a majority in France-based ad tech firm Equativ.<\/p>\n \u201cIn 2021, it was definitely a seller\u2019s market, but now it is definitely a buyer\u2019s market,\u201d Arnaud Cr\u00e9put, CEO of Equativ, said, adding that many companies were valued based on revenues in 2021, whereas buyers are no more focused on appraising prospects\u2019 EBITDA.<\/p>\n \u201cBut you see a lot of the companies that exited in 2021 struggle with those high evaluations, and that can become an issue for the development of a company,\u201d added Cr\u00e9put.\u00a0\u00a0<\/p>\n However, given ad tech\u2019s recent history laden with examples of flameouts<\/a> \u2014\u00a0and many more expected on the horizon, according to some experts<\/a> \u2014 why are PE firms continuing to invest in the space?\u00a0<\/p>\n Several sources consulted by Digiday said the prospective breakup of Google \u2014\u00a0which many believe will divest of its ad tech assets under pressure from the Justice Department<\/a> \u2014\u00a0is furthering the appetite of some investors.\u00a0<\/p>\n For Jean-Baptiste Salvin, a director at Bridgepoint who oversaw the fund\u2019s investment in Equativ, the difficulties faced by the likes of Google and other Big Tech players at the hands of regulators is positive news for \u201cthe open internet.\u201d<\/p>\n \u201cWe see breaches in the walled gardens \u2026 this is a complete part of my investment thesis. These guys [Big Tech] will still be dominant players, but they take 80% of budgets and only 30% of the eyeballs,\u201d he added.<\/p>\n It\u2019s the growing realization among advertisers that walled gardens receive more investment than their share of audience should warrant that has led many PE investors to double down on their ad tech investments in recent months, according to PE sources.\u00a0<\/p>\n One corporate development source, who declined to be named given their employer\u2019s PR policies, told Digiday that a lot of PE firms that invested in ad tech will look to consolidate in the near- to mid-term, especially if there are potential bargains.\u00a0<\/p>\n \u201cPrivate equity will have to do something with the assets on their sheets as they have to do something with them,\u201d added the source.\u00a0\u00a0<\/p>\n One recent example involves Simpli.fi \u2014\u00a0a demand-side platform with significant investment from PE firms Blackstone and GTCR<\/a> \u2014 and its purchase of Bidtellect, a deal that was geared toward pairing their CTV and contextual advertising wares<\/a>.\u00a0<\/p>\n The February purchase of Bidtellect furthered GTCR\u2019s interests in the ad tech space \u2014\u00a0in mid-2022 its Dreamscape entity also invested in Standard Media Index<\/a> \u2014\u00a0with the PE firm\u2019s Stephen Master telling Digiday the more austere contemporary climate makes due diligence more straightforward.<\/p>\n \u201cThe thing is that you can actually see how management teams and companies handle adversity,\u201d he said. \u201cYou don\u2019t have to try to guess \u2026 in some ways, it makes it easier to evaluate, and sort winners and losers.\u201d<\/p>\n Elsewhere, other potential buyers are eyeing potential opportunities in under-the-radar changes within Google\u2019s operations \u2014 in particular how advertisers are handed off to a growing crop of \u201cGoogle resellers\u201d<\/a> \u2014\u00a0with rumored buyer interest in this sector.\u00a0<\/p>\nDeal-drivers<\/strong><\/h2>\n
Opportunity in Big Tech\u2019s difficulty<\/strong><\/h2>\n