Finance

Big Deals Herald Programmatic’s Arrival

Ad-tech mergers are a sign of maturity for once-niche segment 2/15/2016 8:00 AM Eastern
TakeAway

Consolidation among ad-tech firms is simply the next phase in the programmatic TV category’s coming of age.

Norwegian wireless carrier Telenor’s $360 million purchase of ad-tech specialist Tapad in a deal that values the mobile, online and digital data company at nearly six times 2015 anticipated revenue is another sign that the once-niche programmatic advertising segment is entering its next phase of development.

 

The Telenor agreement is the fourth sizable ad-tech deal in about two months, coming on the same day (Feb. 1) as United Kingdom-based digital asset management firm Adstream’s purchase of Deluxe Entertainment Services Group’s AdServices business. Those deals followed Cannella Response Television’s Jan. 28 purchase of Media Properties Holdings, parent of programmatic advertising platform Admore, and Acxiom’s December acquisition of Allant Group’s advanced-advertising unit.

 

The deals are diverse, but have a common theme — larger companies are expanding their expertise in the big data and programmatic arena by buying smaller companies immersed in different aspect of the technology.

 

REACHING THE NEXT STAGE

 

The consolidation trend is part of the industry’s natural evolution, Pivotal Research Group senior research analyst, advertising Brian Wieser said.

 

“There are a heck of a lot of companies that were founded and funded in 2007, 2008 and 2009,” Weiser said. “And if you think of the life cycle of venture capital, each company is going to need exits.

 

“With the absence of a lively IPO market and the absence of available funding, you’ve got a situation where many companies will realize this is all there is and, if they want to exit, they need to look for a strategic sale,” he said.

 

For the most part, the companies in the space deciding to sell are attracting fat prices. Terms of the Adstream deal weren’t disclosed, but the transaction was said to be valued in “eight figures.” The Telenor deal values Tapad at nearly three times its $140 million valuation from just a few years ago.

 

With that in mind, Wieser said he expects the consolidation wave to continue, adding that in the increasingly hot ad-tech space, valuations are basically what the other guy is willing to pay.

 

By Weiser’s estimate, there are about 71 pure-play companies larger than Tapad in the ad-tech space, 13 of which are public. All are potential acquisition targets.

 

Telsey Advisory Group media analyst Tom Eagan said the land grab for ad-tech companies reminds him of the frenzy for interactive TV companies back in the late 1990s and early 2000s. At the time, companies like Wink Communications, WorldGate and Liberate Technologies were all developing different technologies with the same goal — allowing customers to make transactions through their TV sets.

 

“They all either went bankrupt or they were acquired, because they were too many of them doing the same thing and they didn’t have any leverage,” Eagan said. “I think the same thing is going to happen [in ad tech], either they consolidate or they get acquired. The technology they offer is important, but technology never completely drives the bus.”

 

MONEY’S BEING MADE

 

The significant difference is that with interactive TV, there really wasn’t a business yet, Weiser said.

 

“There is a real business in ad tech,” Wieser said. “It’s just more competitive than most expected.”

 

Ad-Tech Top 10

 

The consolidation wave in the ad-tech space is expected to continue for the foreseeable future, according to Pivotal Research Group analyst Brian Wieser. Below are the analyst’s top 10 firms in the space.

 

 

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