Advert tech M&A has had a case of the Mondays since … late 2021.
After the blistering tempo of M&A in the course of the top of the pandemic, deal exercise within the advert tech sector slowed to a trickle in 2022 and has remained sluggish this yr.
Based on LUMA’s most up-to-date market report, launched final week, advert tech deal quantity was down 35% in Q2 in contrast with the earlier quarter.
This previous quarter was additionally notable for an additional purpose, nonetheless: MediaMath filed for Chapter 11 chapter safety on June 30, the final day of Q2.
Although LUMA doesn’t see MediaMath’s demise as a “canary within the coal mine” for dealmaking throughout the remainder of this yr and into 2024, mentioned Conor McKenna, a companion at LUMA.
As “unlucky as it’s,” McKenna mentioned, “MediaMath isn’t essentially reflective of a broader pattern within the business, however extra so of what occurs when an organization has a troublesome capital construction and rising debt.”
Profitability vs. progress
What’s reflective of a broader pattern, he mentioned, is the unusual confluence of a comparatively robust public marketplace for tech shares and a stagnant M&A atmosphere.
Usually, when shares are doing effectively, corporations use their monetary leverage to do offers. However the current macroeconomic scenario has been something however typical.
The specter of an impending recession and rising rates of interest compelled tech corporations generally – and advert tech distributors particularly – to reevaluate their priorities, McKenna mentioned. These distributors spent the previous two years reorienting their enterprise to focus extra on operational effectivity and sustainable progress slightly than a growth-at-all-costs mentality, he added.
In some circumstances, that meant layoffs. Yahoo not too long ago laid off greater than 1,000 folks from its advert tech group after shutting down its SSP and native advert community. Criteo has additionally made cuts this yr, as has TripleLift.
Now, as recession fears begin to transfer into the rearview and rates of interest come again down, advert tech corporations are extra steady and able to start out having the type of preliminary conversations that might result in consolidation throughout the subsequent yr.
“These are extra mature companies now,” McKenna mentioned. “They’ve money within the stability sheet and a public market that’s beginning to help them extra, which is a chance for M&A, particularly as corporations react to massive tailwind alternatives like AI, information, CTV and commerce media.”
Scene setting
It’s not shocking to listen to an funding banker discuss tailwinds and predict M&A to return. However the scene does appear set for some motion.
Client spending is stabilizing, manufacturers have pent-up budgets to spend in This fall and new sectors, together with retail, are embracing promoting.
“For what you would possibly name ‘advert tech vacationers,’ the sheen is off when it comes to how thrilling they suppose the sector is, however we all the time have peaks and troughs of basic curiosity – that’s not new,” McKenna mentioned. “What’s new is the rise in corporations targeted on creating promoting companies and utilizing information.”
Every thing is an advert community, etcetera.
And “the extra folks we’ve got creating higher mousetraps,” McKenna mentioned, “the extra others will wish to purchase them.”
“Will it’s everybody? No,” he continued. “However we’re possible going to see offers coming from corporations which might be on a stronger footing now and in place to make these forms of performs.”
