Record recovery in the advertising technology industry

Record recovery in the advertising technology industry

A record number of advertising and marketing technology companies were announced last year, according to a new report from LUMA Partners, a leading media and marketing investment firm. The volume of deals between advertising technology, marketing technology and digital media companies is up 82% year-over-year.

why does it matter: It hasn’t been long since investors pulled out of the advertising technology industry, fearing it would collapse as the sector moved away from tracking cookies and toward privacy-focused targeting solutions.

  • But optimism surrounding the state’s economic recovery, inflated public market valuations and growth in live broadcasting, gaming and e-commerce has made investors more excited about today’s advertising technology than ever before.
  • “The seven-year period in which the sector was not favored has enabled companies to build sustainable businesses at scale that have performed as well largely as public companies,” said Terence Kawaga, founder and CEO of LUMA Partners. “This backlog explains the high level of IPOs in 2021.”

details: Most deals last year fell broadly into four categories.

  • Moving: Last year was the “most active year ever to close deals” for mobile ad technology, according to the report. AppLovin led the way with its $1 billion acquisition of Adjust and MoPub. Game companies have continued to invest in mobile apps, helping to boost the mobile advertising ecosystem.
  • CTV: With the boom of ad-supported free broadcasting, companies focused on Connected Television (CTV) advertising are becoming more and more attractive to both private buyers and public market investors. Notably, Magnite bought SpotX for more than $1 billion, and Flashtalking was acquired by MediaOcean for $500 million.
  • Electronic trade: A number of big deals have also been supported by the expansion of ad technology companies into e-commerce. Taboola acquired Connexity for $800 million, following its public debut. Criteo acquired Iponweb for $380 million as it continued to stay away from retargeting via cookies and e-commerce.
  • My voice: Digital content deals have led audio companies investing in new content and advertising capabilities. Spotify has acquired Betty Labs and Findaway for access to live audiobooks and audiobooks. iHeartMedia and Audacy have acquired Triton and WideOrbit, respectively, to enhance their podcast capabilities.

The Big Picture: Part of the newfound investor optimism in ad technology companies has to do with the way the pandemic is shaping the markets.

  • The total market that could be addressed was “reversed” by the “pandemic-inducing accelerations in live streaming, gaming and e-commerce,” Quaga said.
  • Kawaja also noted that companies like Snowflake and Shopify have been successful in telling Wall Street that ad tech companies, which rely on transactional revenue models, “are as valuable as contractual recurring revenue models.”
  • “In the past year, we have seen average revenue multiples of ad-based businesses showing strong net revenue retention (NRR) matching revenue multiples of the SaaS business,” he said.
  • A growing number of private equity firms, such as Blackstone, Vista and CVC, have invested heavily in ad technology companies last year, with many hoping to turn a profit once these companies eventually appear in the public markets.

what do you want to watch: Many companies exploring ad technology deals and IPOs focus on ensuring that ad dollars are being spent correctly and in a privacy-focused manner. The initial public offerings of companies like DoubleVerify and Integral Ad Science last year speak volumes for this trend.

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