The few above-market valuations captured by ad-tech companies are increasingly reserved for those vendors remaking the TV advertising market. Although the overall value of acquisitions of ad-tech firms has continued to tumble from the market’s peak in 2015, targets that can help businesses capitalize of the evolving market for TV ads are still able to find buyers at premium prices.
The most recent example comes with The Rubicon Project’s announcement that it will spend nearly half of its equity to purchase Telaria, a maker of software for managing sales of digital video ads. Although both companies operate ad exchanges and publisher-facing ad software, Telaria was built around video, with a focus on connected TV advertising. Rubicon, on the other hand, was built for display ads, later expanding into mobile and online video. Its acquisition of Telaria values the target at 4.4x trailing revenue, while Rubicon itself, a larger and faster-growing company, commands just 2x on the NYSE. (We’ll have a detailed report on this deal later today for subscribers to 451 Research’s Market Insight service).
Telaria isn’t the only ad-tech vendor fetching a premium because of its connected TV capabilities. In its sale to Roku, DataXu nabbed a higher multiple than most of its peers as Roku sought a way to expand its reach in connected TV ads (subscribers to 451 Research’s M&A KnowledgeBase can see our estimates of that multiple here). And LiveRamp, seeking to expand its identity graph into television, paid $150mfor Data Plus Math, a vendor with just 25 employees.
These transactions, and the accompanying valuations, come as TV viewing (the largest nondigital ad market) repositions from over the air to over the internet. The pace of this shift can be seen in 451 Research’s VoCUL: Communications & Media surveys. In the space of a single quarter, the rate of respondents telling us they use a streaming video device (Roku, Apple TV, etc.) to watch video every day rose to 26% from 21%. Similarly, those telling us they do the same on a videogame console jumped to 17% from 11% from our first–quarter to second–quarter survey.
The sudden surge of Amazon’s advertising business has sparked acquisitions of software companies that help retailers become publishers. Microsoft is the latest entrant with the purchase of PromoteIQ, a maker of software that enables retailers to run product ads. As audience monetization becomes a feature of more e-commerce businesses, more deals could come.
For Microsoft, the pickup of PromoteIQ (formerly known as Spotfront) has overlap with its search advertising business. Product ads, often delivered alongside e-commerce search results, are essentially an evolution of paid search advertising. The target’s software provides retailers with workflows and controls to manage their sponsored product listings.
Amazon, more than any other company, has realized the potential for retailers to monetize their apps and websites through sponsored products. As we noted in a recent report, the online retail giant’s advertising business has tripled in less than two years to about $10bn in annual revenue. Despite that growth, the category is nascent enough that there’s not yet a widely accepted name for it. PromoteIQ refers to it as ‘vendor marketing,’ while Criteo and Triad, two of its larger rivals, call it ‘retail media.’
Given the early stages of the market, there are few sizeable players remaining for would-be buyers. Several midsized firms such as Adzerk, Crealytics, Koddi, Playwire and SYNQY offer retail media products. Another vendor, OwnerIQ, enables retailers to monetize purchase intent data gleaned from shoppers on their sites. As Amazon’s advertising revenue continues to balloon, targets in this space could get a look from acquirers in search (Google, Pinterest), e-commerce software (BigCommerce, Shopify) and retail-focused advertising (Quotient, Valassis).
LinkedIn looks to be setting itself up for a second attempt to influence marketing spending beyond its own platform with its latest acquisition. The immensity of its audience profiles should have helped the company build a B2B advertising powerhouse, yet its influence has been barely felt beyond its own website and app. Five years ago, it tried to build out an ad network business but came up short. With the purchase of identity-resolution specialist Drawbridge, it appears set to try again, but differently.
The professional social network already has a substantial marketing business – it was selling roughly $700m annually in ads on its site when it was acquired by Microsoft in 2016. Reaching for Drawbridge should enable the company to find ways to leverage its data beyond its own site. The target developed technology that matches anonymous consumer profiles with devices, helping advertisers target the same audience across multiple devices – desktop, mobile and smart TVs. Such a technology would have little value in selling ads on LinkedIn itself as people must log in to the site to reach the content.
Still, LinkedIn is not likely to use Drawbridge to sell ads beyond its own properties. It tried that with the 2014 purchaseof B2B ad network Bizo, which it shut down less than two years later. Also, Drawbridge had started life as a programmatic ad network before selling its media sales business to Gimbal last year. More likely, LinkedIn will look to use the new assets to develop reporting and analytics capabilities for B2B marketers, as well as augment its ad-targeting data. Such a service would leverage both companies’ strengths in audience identity without saddling them with a low-margin ad business that both buyer and seller have already shunned.
According to 451 Research’s M&A KnowledgeBase, Drawbridge’s exit follows many of its peers in cross-device identity matching. The space has seen a wide disparity of prices. At the high end, ad network Tapad sold to Telenor for $360m. Most recently, Adbrain sold for scraps to The Trade Desk and Oracle picked upCrosswise in a seven-figure deal before that company hit $2m in annual revenue. While terms of Drawbridge’s sale weren’t disclosed, it likely falls between those extremes. Drawbridge had built a larger data business than any of its competitors, generating about $15-20m annually, and had raised roughly $60m from its venture investors.
As Adobe opens Adobe Summit – its annual digital marketing event starting today – the odds are against it using the main stage to announce a major acquisition. After all, 2018 was a record year for the marketing and media software vendor, which printed two $1bn-plus purchases, the first time it’s ever done so in a single year, our data shows. Still, Adobe may have deals left to do as competition intensifies around an expanding market.
In the first iteration of digital marketing, Adobe jumped out to an early lead, largely through its acquisition of website analytics specialist Omniture almost a decade ago. But now the fight has shifted to include new categories such as e-commerce, ad-tech and customer data platforms. That shift is reflected in the tag line for this year’s event – ‘The Digital Experience Conference,’ a change from past billings of the event as ‘The Digital Marketing Event.’ For Adobe, the change has been more than an exercise in corporate branding.
Last year, it paid $1.7bn for Magento, moving beyond marketing and into e-commerce software, and inking its first 10-figure purchase since Omniture ($1.8bn), according to 451 Research’s M&A KnowledgeBase. That transaction was largely a reaction to Salesforce’s earlier pickup of Demandware, which along with the acquisition of Krux in 2016, helped turn the buyer into a major power in customer experience software. Adobe’s other major purchase of 2018, the $4.8bn acquisition of Marketo, a B2B marketing automation provider, was clearly a foray into Salesforce’s turf. Adobe remains the larger of the two in experience software – it posted $2.4bn in sales of such software last year vs. Salesforce’s $1.9bn, although the latter business accelerated at a faster pace (37% annual growth compared with Adobe’s 27%).
Demand from marketers and other line-of-business executives underlies those deals. According to 451 Research’s VoCUL: Corporate Software report, 15% of all businesses are using or about to be using customer experience management (CEM) software. The adoption rates are even higher among organizations investing in a digital transformation project, where 100% of such respondents use CEM software.
With a newfound willingness to spend and a mandate that extends beyond marketing, we see multiple sectors where Adobe could expand its portfolio. It could look to counter SAP’s $8bn reach for customer feedback analytics vendor Qualtrics by purchasing that company’s competitor, Medallia. Such a move would align with Adobe’s ambition to be the system of record for customer data, although it would likely carry a price tag similar to Marketo. Or it could buy an ad server, which would give it additional customer data and a link between Adobe’s creative design software and its ad-tech products by providing creative management and optimization capabilities. Video specialist Innovid and Flashtalking, a rival with a broader portfolio, are the most compelling targets in this market.
With the $340m pickup of Pluto TV, Viacom broadcasts its desire to provide more online video and gain insights about the viewers who watch it. The target offers an ad-supported streaming service with more than 100 channels and claims over 12 million monthly active users. That media content and viewership data could help Viacom as it pushes into streaming video in search of higher ad rates through granular audience targeting.
The $13bn media giant dipped into streaming video M&A with the $17m acquisition of AwesomenessTV in July. Today’s larger deal signals Viacom’s appetite for more digital-first and digital-native content. Price isn’t the only dramatic difference between today’s transaction and that earlier buy. With Pluto TV, Viacom gets a fully backed streaming service that hosts both scheduled content and on-demand videos on a variety of channels, rather than a single channel or studio. Reaching for Pluto also gives Viacom access to millions of users, many of them younger viewers who don’t consume much traditional television. That amount of proprietary audience and viewership data can be immensely valuable, as the company recently cited increased ad rates due to improved ad targeting.
Surveys show that more people are signing up for online video services, often at the expense of traditional TV. According to 451 Research’s Voice of the Connected User Landscape, roughly one-fifth of consumers have either dropped traditional cable and satellite TV providers or have never subscribed to them in the first place. The same survey found that 57% of consumers now pay for at least one online video service.
According to 451 Research’s M&A KnowledgeBase, media firms have infrequently acquired software and internet businesses, having only printed about 20 deals in each of the past two years. Still, we anticipate that more broadcasters and studios will expand their acquisitions of video services or underlying technology as they seek ways to generate a direct link to their audiences to offset declining TV viewership and massive investments in original, niche content from Amazon and Netflix.
Marketers are experimenting with a variety of applications for consumer location data, which is expanding the supply of potential acquirers for a set of startups that was once relegated to a niche corner of the mobile ad sector. The abundance of early-stage startups in this space will likely keep exit sizes modest for now, benefiting companies that need an early exit. Yet vendors that are able to successfully transition from ad-tech suppliers to core elements of the marketing stack could see large exits in another year or two.
Location data was initially gathered in two ways – through beacon deployments at retail locations and via data shared in advertising exchanges. As we detailed in an earlier report, the methods for gathering and managing this data have since expanded and the applications have moved beyond showing mobile ads based on device proximity. That has led to a growing interest among marketers to employ location data for multiple applications, such as behavioral targeting, ad attribution, loyalty programs and competitive intelligence. In a survey from 451 Research’s Voice of the Connected User Landscape, more than half of respondents said this data was ‘very important’ to gaining insight into customer experience.
While the uses of location data are largely experimental today, more marketers are faced with a mandate to meld their physical and digital operations. Location data helps bridge those two by linking digital identity with physical movements. As location data becomes a pervasive part of customer analytics, marketing measurement and campaigns, businesses that can build relationships with brands that encompass multiple parts of the advertising stack will be well-positioned for a bigger payday.
While the exits have been few, they have come at enviable multiples. The most notable of late are Snap’s acquisition of Placed – a supplier of location-based attribution services – and Ericsson’s purchase of Placecast, a developer of white-label advertising software that provides telcos and others with consumer location data to monetize those signals. We estimate that both sold for north of 5x trailing revenue. Each of these deals hits on a theme that we expect to drive future M&A in this market.
Although initially divided between beacon management and mobile advertising firms, we now see five distinct product segments emerging in this market. For a discussion of those segments, along with potential targets in each, read our full sector IQ report on the topic.
Omnicom comes out of hibernation with its reach for customer experience consultancy Credera Technologies. Today’s announcement marks the ad agency holding company’s first tech deal in almost three years. The purchase comes amid a series of stinging earnings reports by Omnicom and its peers as they struggle to keep up with the evolving needs of marketers – needs that have helped large consulting shops gain ground in Omnicom’s market.
Credera brings to Omnicom a set of consulting services that encompass management consulting, user experience, product development and other disciplines that help businesses deploy digital technology for customer engagement. While it’s common for ad agencies to own firms that specialize in digital commerce, web development and other specialties that are closely linked to marketing, they don’t often acquire service providers that help clients make changes to the business itself. That Omnicom has done so speaks to the current struggles of ad agencies and the new types of competitors they face.
Omnicom lost more than 10% of its value after reporting just 2% organic revenue growth, with a decline in its North American advertising business dragging down results. (It wasn’t alone: a few days afterward, WPP disappointed investors with its first-half report.) With the growth of data-driven digital advertising, ad agencies face clients that now want to roll advertising into a larger digital transformation strategy.
The capabilities needed to pull off those projects – change management, software buying and data integration – are often beyond an ad agency’s expertise. That has helped Deloitte, Accenture and other consulting shops with technology chops to take a chunk of the agency market over the past few years. In our surveys, we see those types of digital transformation projects accelerating. In 451 Research’s VoCUL: Corporate Mobility and Digital Transformation Survey at the end of last year, 40% of respondents told us their company has a formal digital transformation strategy, up from 30% in the first half of the year.
As TV audiences scatter across media devices, video services and formats, advertisers need to put them back together. While television content doesn’t seem to have lost its appeal, where viewers watch has grown more diverse. With that change, advertisers and content creators need software and data to buy and sell access to those audiences, leading to a jolt of deals in the space.
AT&T’s acquisition of AppNexus and Amobee’s purchase of Videology are two of the most significant. Driving both transactions is the idea that telcos can match their consumer data with content to improve the pricing and discovery of video and TV ad inventory by owning the technology for buying and selling digital ads. A deal today sees VideoAmp, a maker of software for TV media buying and planning, acquiring a boutique audience analytics firm, IronGrid, to help integrate data from different sources.
TV advertisers always purchased space on a show to reach the audience tuning in. As more TV is broadcast digitally, there’s an opportunity to reach desired audiences with greater precision. Yet, unlike in the past when viewing happened only through the TV set, people now use different devices and services to watch. According to a December survey from 451 Research’s Voice of the Connected User Landscape, 62% of cable and satellite TV customers also pay for online video streaming.
Telcos such as AT&T and SingTel (owner of Amobee) will likely continue to be acquirers here because internet and broadcast viewership data can link households with viewing behavior, helping to overcome the challenge of audience data spewing from different sources for the same or similar content. The shift to digital also provides broadcasters with a direct link to audiences for the first time, so we expect broadcasters like Sinclair and Meredith to seek acquisitions in this category. Alongside them, we anticipate tuck-in purchases from data providers and ad-tech vendors trying to expand their data sets and buy capabilities as they, like consumers, tune into an ever-expanding number of channels.
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Days after refashioning itself as a media company with the close of its Time Warner acquisition, AT&T has inked a deal to help connect its new business with its old. The telecom giant has purchased AppNexus, one of the largest independent ad-tech vendors, as it seeks to use its data-rich telecom networks to bolster ad prices for the richly funded content produced by Time Warner.
AT&T’s legacy business and its newly acquired content arm are menaced by the increasing reach of online video services and the consolidation of digital advertising among a handful of tech providers. As audiences flow online, AT&T’s wireless and satellite TV services face subscriber churn. Meanwhile, its Time Warner business must fend off Google and Facebook, which continue to syphon advertiser budgets through data-driven offerings. The acquisition of AppNexus could make AT&T competitive with those firms through ad sales tools that enable it to develop new, data-driven advertising products.
Although terms of the transaction weren’t disclosed, the target likely fetched north of $1bn. In addition to media reports of a $1.6bn price tag, AppNexus has raised venture capital above that level since 2014. And although ad-tech vendors haven’t been the most richly valued assets of late, AppNexus is a unique company in that the business is larger than most, if not all, independent ad-tech providers and it has a suite of tech products that cater to both advertisers and media companies.
As a wireless carrier and TV service provider, AT&T has an immense stock of data about media consumption habits, location and customer demographics, but few paths to monetize those assets. By owning AppNexus, AT&T can use its data to improve the value of the ads it sells via additional audience data, slice up its ad sales into more nuanced segments, and extend audience-based ad sales across AppNexus’ ad exchange.
We’ll have a more detailed report on this deal in tomorrow’s 451 Market Insight.
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Coupon distributor Valassis Communications has taken another step in its transition to digital with the $95m acquisition of location-based ad-tech vendor MaxPoint Interactive. In addition to getting Valassis another marketing product to sell to consumer goods providers, the target’s technology could plug a substantial weakness in RetailMeNot, a digital coupon firm that Valassis’ parent company, Harland Clarke Holdings, bought in April.
The sale ends a turbulent and short run as a public company for MaxPoint, which debuted in April 2016 with a stock price that’s more than 3x what it’s getting in today’s deal, which values it at a paltry 0.6x trailing revenue.
MaxPoint enables advertisers to run national campaigns for consumer goods that target prospects at the local level, based on a mix of proximity to retail locations and digital demand signals from particular neighborhoods. As one of the world’s largest distributors of coupons, Valassis hands MaxPoint’s media services business a new avenue for growth. But the larger opportunity is in integrating the underlying technology with its recently acquired online coupon business.
RetailMeNot built a business by distributing digital coupons for retail locations. The problem it’s always had is proving to its retailers that those coupons work – did the coupons drive people to the store or did the store just give discounts to people who planned to come anyway? To operate its media business, MaxPoint developed technology that predicts demand for products within the market area for a physical retail location. RetailMeNot could deploy such demand analysis to optimize when and where it launches campaigns and use it to measure the impact.
Moreover, a partnership between the two companies could enable MaxPoint to deliver coupons to RetailMeNot that are tied to a retail location but funded by product vendors and in doing so provide both retailers and consumer products companies a way to navigate a market that’s rapidly shifting to digital with a shared marketing strategy that they’ve employed for decades.
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