Ad tech M&A is heating up as tech giants look to arm themselves against Facebook and Google — and maybe save the digital ad industry

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A wave of acquisitions and funding rounds this summer indicates that investors are warming back up to advertising technology.
Industry insiders point to factors like Europe's GDPR law and an industry-wide movement to clean up digital advertising as driving the renewed interest.
Plus, the dominance of Google and Facebook shows no signs of slowing down, so traditional companies like telecoms and agencies are investing in ad-tech firms for data and technology expertise.
At the same time, ad-tech companies that have been around for a while — like Integral Ad Science and MediaMath — are doubling down on private equity to grow their businesses.

If you work in advertising or media, this summer has most likely felt a lot like an episode of the TV game show "Deal or No Deal."

After a few years of falling stock prices and sluggish acquisition activity in the advertising-technology sector, a wave of big deals over the past few months has reignited the advertising and media industries' interest investing in and buying tech expertise — particularly among firms that specialize in extrapolating and understanding data.

"I think no one would disagree that ad tech is hot again," said Jay MacDonald, the CEO and cofounder of Digital Capital Advisors. "You could say that a lot of the consolidation is happening from the large telco and software companies."

There's perhaps an unexpected driver of this activity: regulation. Numerous ad-tech companies are feeling the heat from Europe's new General Data Protection Regulation privacy law and similar possible US regulation in states such as California.

In light of regulation challenges, you might think dealmaking would slow. But marketers are rethinking the ways they collect and measure data, according to Ben Gaddis, the president of the ad agency T3 — so they need access to as many powerful tools as they can to protect themselves.

"I think you'll see more consolidation," he said. "As long as you're using data, just make it more meaningful — we're seeing more marketers going back to first-party, CRM data."

Firms that can promise transparency and safety are getting snatched up

Ahead of GDPR, a handful of ad companies including Kargo, Drawbridge, and Verve shut down European operations. Elsewhere, according to ad-tech execs, companies waited until the past three months to begin preparing before the sweeping regulation rolled out in May.

"The industry was ill prepared for something of that magnitude — the last three months were crazy," Index Exchange's CEO and president, Andrew Casale, said.

Along with GDPR, ad-tech companies have also reworked their transparency efforts to combat fraud, which has long been a thorn for investors.

"There's this almost smoke screen over ad tech because it is so complicated," said Tim Cadogan, the chairman and CEO of OpenX.

"In the last 18 months, a lot of progress has been made in clearing out the smoke — you have a whole new set of standards that are making it a lot easier to know who to work with and who not to work with," he said, referring to the publishing industry's Ads.txt initiative that aims to wipe out fraud from sites.

The duopoly is affecting all areas of advertising

Legacy companies like telecoms and ad agencies are under pressure to stay competitive with more data-based services. So it's no surprise that the two industries are prime for acquiring ad-tech companies.

"The entire business, just like publishing, is getting squeezed in the dominance of Google and Facebook," said JC Uva, the managing director at MediaLink. "These big walled gardens are squeezing the open web market."

Most notably, there's AT&T's acquisition of AppNexus to build an ad-tech stack meant to match complex ad targeting with premium TV and video content.

Brian Lesser

The Singapore-based telecom Singtel is also beefing up its portfolio of digital advertising companies. The Singtel-owned Amobee recently won a bid to acquire the video ad-tech firm Videology's assets. Singtel's advertising group also includes its previous ad-tech acquisitions Turn and Gradient X.

"Overall what you're seeing is frankly a maturing industry," said Philip Smolin, a former Turn executive who is now Amobee's chief strategy officer. "The prior 10 years was early stages, and you had a lot of innovation that was occurring in things that were new — the value for marketers increasingly is around the connection between all of these media channels."

And in terms of the companies getting scooped up, it's worth noting that many have proved more financially sound than previous ad-tech firms, which helps spur investor interest. "You can now justify some of these valuations based on the fact on that they're profitable," he said.

Agencies and marketing clouds are the hunt for new sources of data and revenue

Ad agencies also want a bigger piece of the space, as shown by Interpublic Group's purchase of Acxiom Marketing Solutions for $2.3 billion this month to create customized ad targeting and first-party data sets.

Uva JC 01482 The holding companies Omnicom, Dentsu, and Publicis have similar offerings, but it's hard to compete with WPP when it comes to acquisitions. Before his ouster as CEO, Martin Sorrell aggressively acquired data-minded shops.

IPG's moves are notable therefore because "those guys have been really quiet — besides WPP — in the past," MacDonald said.

At the same time, big consultancies and software companies like Accenture Interactive and IBM are active shoppers because they "feel that they have an advantage — their client is the CMO," he added.

Marketing clouds are getting aggressive, too. Over the past few years, Adobe, Oracle, and IBM have revved up their dealmaking, snatching up the likes of TubeMogul, Moat, and The Weather Company.

Most recently, Salesforce nabbed Datorama for a reported $800 million to give marketers access to data from email, social media, and advertising, and the company also acquired the demand-side platform Krux in 2016.

"They each have different strengths and gaps in their offering," MacDonald said.

Private venture is increasingly attractive

Still, acquisitions are not the end-all for all ad-tech companies. Firms like Integral Ad Science and MediaMath are landing big funding from private-equity firms to invest in technology that crunches reams of data and artificial intelligence for advertisers.

MediaMath — a firm that has long been rumored to be an acquisition target — recently secured $225 million to invest in new areas like artificial intelligence, for example.

Going the route of private equity is becoming more valuable for firms, MediaLink's Uva said, because "there is less mystery about ad-tech and mar-tech than there were a few years ago."

Interestingly, Uva said some of the firms grabbing private-equity backing have business models that allow them to piggyback on the success of big platforms like Facebook and Google, again showing the duopoly's dominance in digital advertising.

Verification companies like Integral Ad Science, Moat, and DoubleVerify have been acquired or received significant funding in recent years.

These companies work directly with marketers and platforms to measure ads, meaning they are able to "sit outside the risk that Facebook and Google dominate," he said.

"All have cracked into the social side that's still growing — that's an interesting place to be because you can grow with these scaled platforms."

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