Buy or Build: Ad Tech’s Super-Charged M&A Action
Ad tech deal-making experienced a major growth spurt over the past year and a half, so much so that according to Luma Partners, ad tech and mar tech deals grew a whopping 200% year over year in Q2 2021.
During our panel at Advertising Week New York last week, we brought together three industry leaders: Michael Barrett, President and CEO of Magnite, Adam Singolda, CEO of Taboola, and Mark Zagorski, CEO of DoubleVerify, to discuss the forces driving ad tech’s seismic boom and what’s in store for the future.
Here are some key takeaways from their lively discussion with moderator Lauren Johnson from Business Insider.
1. The ad tech industry is booming — driven by consolidation and scale.
Mark Zagorski: We’ve grown to a stage where people understand that scale matters. M&A presents the fastest opportunity to achieve that scale. Ultimately, you’re either big or roadkill, and if you don’t compile quickly, you’re the latter.
Adam Singolda: What we’re seeing from the client-side is that people want to invest more with fewer companies. In a world where clients are looking to diversify as much as they can outside of walled gardens, scale is more important than ever, because it’s either, “go big or go home.” That, and more access to financing, is driving consolidation and M&As.
Michael Barrett: Having seen firsthand all the booms and busts of our industry, we’re booming. The original bust occurred largely because the first wave of public ad tech companies weren’t necessarily the best and brightest: they were glorified rep firms. Public investors lost confidence in adtech when these companies went belly up. Also, they felt Google could do everything. Then programmatic changed the game. Now, what people are finding is that for the open web, you need independent companies. Meanwhile, Google’s aspirations have changed; they’re not looking to run the table on the open web. So, the open web is a huge piece of the economy on the digital advertising side that demands scale-differentiated companies.
2. Digital advertising’s growth has only been accelerated by the pandemic.
MZ: The pandemic has put a great deal of focus on digital media in its entirety. Our companies all benefited from the fact that more eyeballs were focused on digital screens. That helped drive dollars and business. There’s a lot of capital out there. When you look at the second generation of advertising technology companies, we’re all profitable, right? So we’ve been buying and building. The last 18 to 24 months have fast-tracked this, with a real opportunity for investors.
AS: With the pandemic, many businesses had no choice but to go digital faster. So we caught up to the future all at once. It also accelerated an appetite to work with programmatic. Second, consumer behavior changed. Consumers are buying so much more online. They’re going to doctor appointments on iPhones and learning over Zoom. Businesses now realize that if they don’t have a digital strategy, they risk not existing.
MB: As it relates to CTV, changing consumer behavior pulled the industry forward two and a half years. It accelerated cord cutting with more audiences watching streaming platforms — specifically ones that are ad-supported. If you remember going into a pre-pandemic, Netflix was the model. No ads, a high subscription fee: that was the winner. What you see now is that the hybrid model is more favored by audiences, advertisers, and investors. Low subscription price, with limited ads. When the Upfronts blew up, with streamers taking a greater piece of the pie, that was a big accelerant as well.
3. Non-advertising companies want to reach consumers — creating a rise in retail media.
AS: Interestingly, we’re seeing companies that historically would have said, “We’re a non-advertising company,” get into the game. An example is DoorDash. As Michael mentioned, the open web equates to $60 billion dollars a year sitting outside of the walled gardens. We’ve obviously seen a lot of the retailers build ad businesses that basically challenge Amazon, such as Walmart, Target, CVS, DoorDash, and other retailers. My belief is that everybody eventually will become an advertising company. I think Tesla will become an advertising company.
MB: The rise in retail media is an opportunity for ad tech. Specifically, in our instance, some of Magnite’s largest clients are OEMs that are building devices or building TVs. Their preferred method of transacting, when it comes to advertising, is programmatic. Most of them stopped short of building that component themselves. So, they want to work with third-party companies to help them. They still want to control the inventory. They are very protective of their environment, the consumer experience, but they do need a scaled technology company to partner with.
MZ: What’s so exciting about retail media is that the retailers just got fed up with what wasn’t happening. Their thought was, “I want to drive an outcome with my own data.” So, I think it creates a compelling driver for the industry to start linking the data that we have closer to outcomes because that’s the whole promise of digital advertising — be it content-based or CTV.
4. The flurry of M&A and IPOs over the past 18 months is transforming the supply side.
MB: The driving thesis behind Magnite’s merger with Telaria was to provide scale and create a truly omnichannel platform to clients. Clients want to work with fewer partners and have them do more. Why not give them an independent alternative that provided all the general exchange features, plus CTV? When we landed SpotX, we tripled our CTV business. From a partner standpoint, we became the definitive CTV industry leader, as well as a comprehensive omnichannel platform. From an investor standpoint, Magnite is a strong CTV bet for capitalizing on the surge of CTV.
AS: Last year was a big year. Taboola went through two mergers and went public. I turned 40, moved to New Jersey, and became an American. So, it’s been a lot. The merger was an opportunity to accelerate our plans. At the end of the day, the world deserves an open web, free-speech, journalism-grower, non-walled garden, truly zen, non-Darth-Vader company. We’re small compared to Google and Facebook, but still fighting the good fight.
MZ: DoubleVerify’s IPO was the culmination of a perfect storm of some great growth that we had. The emergence of brand safety as a bigger issue — and not just brand safety, but brand sensitivity, particularly in social channels. That helped accelerate our business growth, but also gave us a much bigger platform upon which to talk to the marketplace.
5. Despite consolidation and working from home, culture is still king.
MB: Having a merger during the pandemic compounds the challenge of building a culture. Our People team worked tirelessly to provide benefits, mental health, and wellness programs for everyone. But nothing beats face time. We’re an office-culture company, so it will be good to shift back to the office. There’s a social impact that gets missed from 100% remote work.
MZ: Through DoubleVerify’s process of going public, we did our entire roadshow, private placement, our IPO — all virtually. The investors and analysts loved it. No one had to waste time on planes. We had more meetings with investors than we ever could have. So working virtually has actually made the capital markets more accessible. And I was home every night, having dinner with my family as opposed to on the road.
AS: Working from home has put a huge emphasis on culture and transparency. How do you communicate with each other? How do you innovate? I miss people, and we’re excited to have people in the office again, but in some ways, work culture has changed forever. In a sense, if you can go public from your room with your kids making noise outside your office, and that’s okay, what does the future look like?