Analysis: H1 ad-tech and mar-tech M&A activity
The race to be the standard continues, writes Results International’s Mark Williams as he digests the latest mergers and acquisitions activity sweeping across the sector
Most enterprise functions have a small handful of dominant software platforms, for example Workday is to HR what Salesforce is to sales. However, we have yet to see a de facto software choice for the marketing functions. Instead, a wide range of ad-tech and mar-tech products are being used and there are currently no clear winners.
It remains a fragmented market with lots of players and huge amounts of innovation underpinning it and because the ad-tech and mar-tech sector is constantly changing there is also significant opportunity and demand.
A glance at the global M&A market for ad-tech and mar-tech in H1 2016 confirms this. The overall volume of combined deals completed was up by 9.5% on the same period in 2015, rising from 199 deals in H1 2015 to 218 in the first half of this year. The disclosed value of those deals, based on total consideration, also rose to $11.5bn in H1 2016 from $9.2bn in H1 2015.
Although the number of ad-tech deals completed was down slightly year-on-year, from 67 transactions in H1 2015 to 60 in H1 this year, the number of mar-tech deals rose from 132 in H1 2015 to 158 in H1 this year – an increase of almost 20%.
Meanwhile mar-tech deal value rose from $1.5bn in H1 last year to a massive $7.8bn in H1 2016, although these figures are largely skewed by a number of major acquisitions in excess of $1bn: Demandware by Salesforce ($2.8bn), Marketo ($1.6bn) and Cvent ($1.7bn) by Vista Equity Partners, and Sitecore by EQT ($1.1bn).
Oracle, Salesforce, Adobe IBM and others are using their considerable cash resources to build their own end-to-end ‘marketing clouds’. That Salesforce acquisition, for example, was a clear strategic move.
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Oracle and IBM both have an e-commerce platform, while Salesforce didn’t. But now, buying Demandware gives it a new group of customers, a new revenue stream and product offering to cross sell to its existing customers and a stronghold in digital commerce to complement its existing product suite.
Other areas such as mobile, video, data and cross-device tracking are also seeing a lot of interest – and the likes of Oracle and Salesforce are not the only players. For example, the trend for Asian acquirers to buy into overseas territories continues with a number of noteworthy ad-tech deals in H1. These included Miteno’s acquisition of Media.net for over $900m; publicly traded Chinese integrated marketing group Spearhead buying into the US and EU markets via Smaato; and Canadian DSP AdGear being acquired by South Korean giant Samsung.
Similarly, private equity investment in both sectors continues to grow quarter-on-quarter. Notably, Vista Equity Partners invested over $3.5bn in Marketo, Cvent and Colspace Corporation (through its portfolio company Mediaocean), whilst EQT invested $1bn in Sitecore in H1 2016.
The number of deals involving PE backing in the first half of 2016 was 15.0% in ad-tech and 10.8% in mar-tech, up from 4.5% and 5.3% respectively in the same period last year.
And while ad-tech demand continues to be driven by new entrants into the sector – we’ve seen a number of players make their first acquisitions into the space – the first half figures also show the continued rise of investor and acquirer interest in mar-tech platforms.
The latter’s revenue model, typically based on licence subscriptions, has proven more attractive to public market investors than the transaction-orientated models (percentage of media spend, or arbitrage) seen more often in ad-tech. A subscription model offers longer term revenue visibility, while publicly-listed mar-tech companies tend to have greater scale and revenue growth.
So what does this mean going forward? Whilst Brexit has created an uncertain environment for UK (and to a certain extent, EU) companies, it’s clear that the fundamental drivers of consolidation and investment within ad-tech and mar-tech – growth, innovation, access to new geographies and the emergence of new buyers – will continue to drive strong levels of M&A and funding activity.
Early indications from both investors and strategic acquirers is that their appetite for differentiated and innovative companies will remain high. The hunt for marketing’s counterpart to SAP or Workday is, it seems, heating up.
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