Adtech isn’t in trouble — it’s just misunderstood

programmatic

GUEST:

Adtech took a very public beating in 2015 – falling stock prices throughout the year and an IPO market that has effectively been shut since mid-2014 have led to speculation about the state of the whole sector. However,

One of the unique features of the adtech market is the sheer number of companies for whom advertising technology is strategically relevant. Not many businesses across the breadth of the (cash rich) technology, media, and telecom universe can ignore the disruption that’s occurring in advertising and marketing. For some, such as the enterprise software vendors, it presents an opportunity to integrate additional revenue streams. Conversely for traditional media players, notably publishers and broadcasters, it offers a defensive mechanism to protect those revenues. Other interested parties include telcos, traditional data groups, social networks, and other diversified Internet groups, and consultants, not to mention the pure-play adtech and martech consolidators themselves. An increasingly competitive market coupled with a frenetic rate of innovation suggests adtech M&A will remain buoyant.

The other critical factor in the ongoing strategic interest in this sector is the shift in momentum from adtech to martech. The public markets now make a clear distinction between each segment. While definitions vary, the market generally thinks of adtech as technology designed to streamline the buying and selling of digital ad inventory, where the revenue model is tied to media spend or other performance-based metrics. By contrast, martech is software sold on a subscription basis to facilitate and optimise the broader marketing function. For investors, the subscription-based revenue model is generally most attractive because it provides greater revenue visibility and (potentially) stickiness. In reality the picture is more blurred, but this shift has also become apparent in the private market, and many of the very high multiple deals in 2015 were in the martech segment.

I can’t overstate adtech’s importance, though — media spend represents over half of most marketing budgets, and global ad spend is $570 billion per year.

In reality the sectors are (slowly) converging, and the end game will surely see vendors providing integrated marketing and advertising platforms to brands. This convergence will take longer than some commentators are currently predicting, but it will underpin continued M&A activity in the sector.

Without doubt, the adtech sector faces challenges — continued consolidation behind the “walled gardens” of the digital giants, such as Amazon and Facebook, the impact of ad blocking, ongoing data privacy concerns – but the opportunities are as great as the challenges. As in every tech sector, startups and growth companies will drive innovation, and the large strategic acquirers will continue to bring that innovation in-house through M&A throughout 2016.

Julie Langley is a Partner at M&A and fundraising advisory firm Results International. She has over 15 years experience advising technology and digital media companies on corporate transactions, including company sales, acquisitions, financings, MBOs, and joint-ventures. She has completed transactions with companies including Oracle, Microsoft, Experian, Moody’s, IAC, BT, Axel Springer, CNET, and DMGT.

Via:: VentureBeat