Advertisers emerge as buyers for ad tech

With venture capital money for
ad tech and marketing technology businesses scarce
 and
strategic buyers also hard to find, marketers are emerging as
potential acquirers.

The slump in optimism around ad tech and martech businesses
hasn’t been enough to deter a growing number of advertisers. So
far this year, several high-profile advertisers have swooped for
companies that sat on the periphery of the ad tech and mar tech
sectors. McDonald’s bought personalization platform in March,
Walmart snapped up ad tech startup Polymorph Labs to deliver more
relevant ads to online shoppers in April, Nike bet on predictive
analytics company Celect in August; travel startup OYO Hotels and
Homes-bought Danamica, a Copenhagen-based startup that specializes
in dynamic pricing through machine learning in September; and the
same month MasterCard cut a deal for customer data platform
SessionM.

As different as the acquired businesses are to one another, none
of them can be described as a core part of an ad tech or martech
stack — i.e., a demand-side platform, an ad server, a content
marketing platform or search engine optimization tools. None of
those
types of businesses are easy to manage.
Agencies and publishers
have tried to make those deals work in the past and struggled to
varying degrees. When mobile phone operator Three kicked off a
search to acquire a DSP in the first quarter of the year, for
example, the procurement process quickly ground to a halt, said one
consultant with knowledge of the plan on condition of anonymity.
With the latest wave of acquisitions, however, advertisers aren’t
trying to shoehorn sprawling ad businesses that weren’t developed
with them in mind. Instead, they’re eyeing smaller but arguably
more strategic vendors that can turbocharge specific
objectives.

“We’re not talking about premium ad tech and martech
businesses that are attracting the interest from advertisers,”
said Tristan Rice, partner at M&A advisory SI Partners.

The motivations for these deals aren’t too dissimilar to why
advertisers have bought agencies, built their own technology and
hired internal specialists over the years. Data-driven
personalization is a common thread that draws together many of the
deals that have been completed by brands. Owning those types of
companies directly could save time and money while also provide
greater control over results.

Take Walmart’s acquisition of Polymorph Labs and McDonald’s
deal for Dynamic Yield, for example. Walmart is able to serve
highly targeted ads, and McDonald’s can offer diners individually
tailored menus. The idea of using data and technology to enable a
better customer experience and ultimately drive higher conversion
rates is a key factor in many of these deals.

Growing interest in ad tech and martech from advertisers is
viewed as something of a lifeboat for entrepreneurs worried they
weren’t going to see a payday for their businesses, which provide
solutions to specific problems rather than the full-scale
propositions of larger players in the ad tech and martech space.
For a start, the companies that have caught the eye of advertisers
are valued on the tech solutions needed rather than the strength of
their financial models. The likes of Dynamic Yield are smaller
vendors that haven’t been able to grow at the same rate as
larger, more traditional ad tech and martech players have. The
valuations between the two types of ad tech and martech businesses
are worlds apart. McDonald’s bought Dynamic Yield for $300
million (£234 million), whereas AT&T acquired ad tech vendor
AppNexus for $1.6 billion (£1.3 billion, for example).

“Brands and retailers at risk of being disintermediated by
Google, Amazon, Facebook and Apple are actively fighting back,”
said Julie Langley, partner at M&A advisory firm Results
International. “We will undoubtedly see a lot of interest in tech
businesses that can help physical retailers bridge the gap, and
turn physical stores into a positive as part of their broader
digital transformation.”

Like the McDonald’s deal, Mastercard’s move for SessionM
earlier this month was motivated by how much data, targeting
expertise and measurement sophistication it could bring to the
financial firm, specifically its branded credit card loyalty
programs. In the case of Nike, it doesn’t take that much of a
leap to expect further acquisitions in both ad tech and martech
when former eBay CEO John Donahoe, who is also the CEO of cloud
computing company ServiceNow, takes over the reins in January
2020.

“Large brands, in particular, want to own elements of their
tech stack,” said Nick King, founder of consultancy Canton
Marketing Solutions. “However, they are wisely not trying to buy
or build what I call the foundation stones of ad tech, as
off-the-shelf solutions are programmable to a high enough level.
“The opportunity sits within data and personalization tech as the
needs are often so unique. Given the time of building from the
ground up, acquisitions are a very quick way to get ahead of the
completion.”

While these sorts of advertiser-led acquisitions initially
caught some observers in advertising by surprise, they’re
starting to make a lot more sense.

“In an era where tech-enabled marketing is rapidly allowing
marketing functions to move back in-house, it’s not surprising to
see some of the world’s most powerful brands with massive
proprietary first-person data assets, seeking to build the value of
that data and drive greater engagement and utility from it,” said
Jim Houghton, partner at M&A advisers Waypoint Partners.

The observation runs counter to the narrative behind M&A
activity in ad tech and martech over the last two years. It was
more about the numbers. But none of the advertiser-led acquisitions
have been driven by the size of their EBITDA or the liquidity of
its cash flow in the way they were for venture capital investors.
The shift from venture capital to advertiser-led deals means both
the size of the fees and how they’re structured are unlikely to
be anything like what ad tech vendors and martech entrepreneurs
have been exposed to in the past.

Still, the flurry of activity makes up a small proportion of the
number of M&A deals emerging in the ad tech and martech sectors
now. Private equity investors are still the most active investors.
But advertiser-led acquisitions will accelerate over the coming
months, said Houghton as vendors focused on data-driven targeting
and customer experience continue to be key targets for
advertisers.

The post Advertisers
emerge as buyers for ad tech
appeared first on Digiday.

Source: FS – _Marketing
Advertisers emerge as buyers for ad tech