The causes for this overall drop in the number of exits are well evidenced: a downbeat global economic outlook impacting overall ad spend, unprecedented M&A and public listings in 2021.

Add to this how the decline in the valuation of those that debuted on the public markets the previous year (down 59% on average, according to LUMA Partners) led to a reduced appetite among potential suitors. Such dynamics meant that deals in the sector were either deferred or outright reconsidered.

Deal-drivers

However, from the comparative low, there are dynamics starting to rekindle a potentially new flow of deals, namely the opportunities posed by the potential disruption of Big Tech.

Elsewhere, there is also the potential for taking ad tech companies on the public markets (many of which are priced significantly below their IPO prices).

And for those publicly-traded ad tech companies that want to future-proof their Wall Street narratives, purchasing the right bit of tech can help to shore up their stock price.

According to Terence Kawaja, CEO of LUMA Partners, the ad tech sector is at the consolidation stage of its gestation. “Every industry goes through three phases of new company formation, maturity, and then rationalization and consolidation,” he told Digiday.

“We are clearly in the third phase,” said Kawaja, adding that this period makes it a prime investment prospect for “later-stage financial investors,” particularly private equity.

One recent example is Bridgepoint Development Capital — part of Bridgepoint Group, which took a majority stake in fellow ad tech company MiQ in late 2022 — taking a majority in France-based ad tech firm Equativ.

“In 2021, it was definitely a seller’s market, but now it is definitely a buyer’s market,” Arnaud Créput, CEO of Equativ, said, adding that many companies were valued based on revenues in 2021, whereas buyers are no more focused on appraising prospects’ EBITDA.

“But you see a lot of the companies that exited in 2021 struggle with those high evaluations, and that can become an issue for the development of a company,” added Créput.

Opportunity in Big Tech’s difficulty

However, given ad tech’s recent history laden with examples of flameouts — and many more expected on the horizon, according to some experts — why are PE firms continuing to invest in the space?

Several sources consulted by Digiday said the prospective breakup of Google — which many believe will divest of its ad tech assets under pressure from the Justice Department — is furthering the appetite of some investors. …read more

Source:: Digiday

Author: Aaron