What’s happening in late stage AdTech? A look at fundraising and M&A

by Nima Wedlake on April 11, 2016

There has been plenty of discussion recently about a downturn in the advertising technology (adtech) sector. This gloomy outlook has been fueled in part by lackluster performance among public adtech companies, which in turn compressed valuations in private markets and likely delayed IPO plans for later stage adtech companies.

While the choppy IPO markets are certainly not specific to adtech (we’ve yet to see any technology companies go public in 2016), the prospects of public adtech companies have certainly dimmed overall sentiment in the sector. Specifically, some of the early adtech companies to hit public markets positioned themselves (incorrectly) as technology platforms with predictable revenue, when in reality their businesses were largely contract-based and tied to media spend. This led to a misalignment in investor expectations, and ultimately a loss of faith in the entire sector.

But what the headlines don’t capture is the level of innovation that’s occurred within the digital advertising ecosystem over the last several years — specifically, the value of programmatic buying, real-time bidding infrastructure, and accurate, actionable data to inform targeting. We’ve witnessed a dramatic shift in how ad inventory is bought and sold — two-thirds of US digital ad spending is now transacted programmatically, according to eMarketer. This shift will continue to drive opportunity for startups in the sector.

It’s also important to recognize that adtech companies continue to operate in a sector that is growing rapidly. Digital advertising in the U.S. is expected to exceed $66 billion in 2016, surpassing television as the largest media category. And in our last research report we covered the advertising opportunity specifically on mobile, which is expected to grow by 30% annually through 2019. So while the pace of investment dollars into the sector has slowed slightly, there remain many promising adtech companies that continue to scale their business and raise capital.

To help illustrate this, we’ve compiled data on late stage adtech financings over the last several years, as well as a summary of M&A activity in the sector. Here are some of the highlights:

Late stage financings: Investment in late stage ad tech companies (defined by Pitchbook as “usually Series B to Series Z+ rounds”) peaked in 2014, both in terms of number of deals and total dollars raised. While we saw a drop in the number of companies raising capital in 2015 (41 vs. 64), the total amount of capital raised dropped only slightly (down 12% YoY to $753M). What this tells us: investors are placing bigger bets on fewer companies, usually those that have reached sufficient scale, are profitable (or approaching profitability) and have a defensible technology advantage. Late Stage AdTech Financings

Adtech M&A: We saw a huge spike in the number of adtech acquisitions in 2014, including Datalogix (acq. by Oracle for $1.2B), Brightroll (acq. by Yahoo! for $640M), and LiveRail (acq. by Facebook for $500M). While the total number of acquisitions was down in 2015 (69 vs. 103), it was the second-most active year for adtech M&A over the last decade. Notable transactions in 2015 include Verizon’s $4.4B acquisition of AOL, comScore’s $770M acquisition of Rentrak, and Twitter’s $530M TellApart acquisition. Note: We used the excellent M&A tracker from AdOpsInsider, excluding publisher, agency, and martech acquisitions from this analysis.

AdTech M&A

We’ve embedded our complete findings below and you can download the presentation here.

AdTech Late Stage Deal & M&A Analysis (Thomvest Ventures) from Thomvest Ventures

Looking ahead

While we don’t expect the IPO markets to fully reopen for adtech companies (or the broader tech sector), we do expect the pace of adtech acquisitions to rise in 2016. A few key drivers of M&A:

  • Compressed valuation multiples of public adtech companies make this a buyers market compared to years past.
  • New buyers of adtech are emerging that are looking to better monetize their unique data assets or audiences. We’ve already seen some noteworthy acquisitions in 2016, including the $360M acquisition of Tapad by Norwegian telecom company Telenor and the $1.2B buyout of Opera Mediaworks by a Chinese consortium led including Qihoo 360 & Kunlun.
  • We believe the “marketing cloud” vendors (think Adobe, Oracle, Salesforce) will start to move more aggressively into adtech. Media buying capabilities at large brands are increasingly moving in-house, which presents an opportunity for these vendors to expand their adtech offerings.

On the venture side of things, we expect total capital invested in late stage adtech companies to keep pace with 2015 levels. We’ve already seen several large financings in the first quarter of 2016, including MOAT’s $50M raise and PlaceIQ’s $25M funding round. Companies with a unique advantage — be it data, technology, or platform integrations — will continue to find bullish adtech investors.