AdTech Grows Up

Recent M&A announcements in the AdTech industry mark a sea change that spells both opportunity and doom.

Each of the recently acquired companies  — HookLogic, TubeMogul and Krux, to name three  — was a market leader that is now part of a more comprehensive offering such as Criteo, Adobe or Oracle. Each was sold at what seemed a strong valuation.

Meanwhile, still-independent companies are having trouble. Rubicon continues to get pummeled, Rocketfuel’s stock price is down more than 90% from its high, and Tremor Video’s market cap is fluctuating up and down. What is happening?

It is a culling of the herd. AdTech is becoming a handfull of gravitational centers — Google, Facebook, Adobe, Oracle, Criteo, etc. — each of which is expanding its offerings. Hundreds or thousands of small, specialized companies may have great technology, but they are chasing the remaining 10%-15% of the market.

The VC community, once enamored, has been sustaining a disdain all things AdTech. In part, this is the natural evolution of any market. Another part is the significant VC over-investment in the AdTech space. Now, just as in the first dot-com bust, many of the small, me-too companies are suffering. Too many of them have built an infrastructure that their revenues cannot support.

Opportunities and Distressed Sales

The segments that are doing well are leveraging new trends and opportunities.

Most are not simple AdTech companies trying to sell technology that is married to media but rather are MadTech (our term for marketing and advertising tech combined) companies straddling what used to be unique market segments and delivering a clear solution with definable ROI. Think, for example, of a specialized business-to-business DMP married to a media activation capability. They are charging directly for services. That may slow revenue growth but create a more sustainable revenue model.

Be on the lookout for lots more M&A activity, with a lot of distressed sales. There are literally hundreds of AdTech companies that raised venture capital at valuations that required hundreds of millions of dollars in top-line revenue to support a reasonable exit.  If those companies received funding between 2009-2013 and haven’t broken out yet, they are going to become fodder for aqui-hires and fire sales. They are the Walking Dead.

Those companies that have been funded over the last two years generally did not go to market promising big media sales but rather technology that helps companies leverage data and communications with a clear ROI, such as marketing automation or sales tools. While those markets might be getting crowded and have some early breakouts (Hubspot or Marketo anyone?), the right mix of technology and business model seems to be capturing new investment dollars.

Author: Jonathon Shaevitz

Jonathon Shaevitz is the CEO of Industry Index.

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