Cadent's $324 million acquisition of performance marketing company AdTheorent has the ad tech world buzzing. Could this be a long-awaited thaw and signal a resurgence in M&A?
That certainly seems to be the case, with Walmart spending $2.3 billion on Vizio, Triton Digital scooping up AI brand safety startup Sounder, and LiveRamp spending $200 million on Habu.
However, the transaction itself is not the only important aspect. It's the whole atmosphere surrounding them.
This time last year, trading was overshadowed by rapidly rising interest rates and a range of external factors, from the failure of Silicon Valley banks to economic concerns.
Flash forward and the atmosphere changes completely. Publicly traded companies are hoarding large amounts of cash, private equity investors have plenty of dry powder to deploy, and borrowing costs remain stable.
Will M&A activities sprout?
Certainly, all signs point to a resurgence in M&A activity, but the timing and pace remain debatable.
Some are predicting an increase in the second quarter, while others are predicting an increase later this year. No matter when it happens, it's unlikely to be a typical boom. Markets are becoming more complex, requiring dealmakers to be agile in navigating this evolving landscape.
“We are at the term sheet stage for two separate acquisitions,” said an executive at a global ad tech company, who spoke on condition of anonymity because he was not authorized to speak to Digiday.
Sure, a term sheet isn't a handshake, but it's a clear sign that the movers and shakers of ad tech are busy behind the curtain.
And how active are they? Well, it's enough to take a quick look at the numerous rumors currently circulating.
Management is well-informed and speculative, suggesting private companies like InMobi and MiQ as well as public companies like Verve Group and Viant as potential players in the deal hunt.
Even if there are no concrete moves with these companies, just making their names public will increase expectations for a deal. Of course, this is with the help of working bankers.
The selling company has appointed a banker to prepare, but it is an open-ended process.
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Charles Ping, managing director at Winterberry Group, said: “While external data is difficult to find, conversations in the market indicate that selling companies are appointing bankers to prepare for the sale process. “But it is an open-ended process.”
What's smoldering behind the scenes is shaping up to be different from the big, blockbuster acquisitions of previous waves of M&A. Instead, we expect more strategic and relevant acquisitions aimed at meeting specific needs in areas such as CTV, retail media, addressability, and sustainability.
“The era of extreme valuations will not be far away,” said Abeed Janmohamed, founding partner at growth consultancy Boland.
For example, consider the deal with AdTheorent. Cadent was acquired for $324 million, a far cry from its valuation of $1 billion in 2021.
“Of course, there will always be outliers that dominate large valuations, but I don't think there will be that many,” Janmohamed said. “These transactions are now under more scrutiny.”
This says a lot about the future trading theme, but it also says a lot about the discipline behind it.
“After a tough 2023, potential investors will be more engaged and deal structures will become tighter,” Janmohamed said. “The market has changed.”
The very engine driving the recent M&A frenzy has evolved accordingly.
Today, financial institutions, as well as operating partners of PE firms, are in the driver's seat. We expect different deal structures and a greater emphasis on strategic alignment and post-merger integration planning.
Once the dust settles, the market will look smaller. Consolidation is long overdue in the ad tech industry, with smaller companies struggling and economies of scale favoring larger companies. Fragmentation and regulatory pressures complicate matters, while emerging technologies require significant investment.
And let's not forget one of the key drivers behind this consolidation: the end of extensive, detailed tracking.
Bob Walczak, CEO of MadTech Advisors, said the pending phase-out of third-party cookies will inevitably be a factor as the industry looks to move away from its reliance on third-party data.
“This is the forcing factor in today's M&A…It's time to redouble your efforts for the next evolution and transform your business into one that leverages your data, or to get ahead of that transformation and exit. I'm asking myself, '? '' he told Digiday.
Walczak further explained his view that companies with strong positions in industries that default to first-party data, such as alternative ID and data clean room providers, are likely to be acquisition targets.
The alternative is to reinvest, or “build, not buy,” but the former option can be attractive if a deal is needed, especially if there is an option to take the listing candidate private. It may become clear.
Investment bank LUMA Partners says in its 2023 full-year market report that deal volumes will increase by the end of this calendar year (compared to the previous two years), with CTV retail media professionals also likely to gain popularity. suggested that it was high.
MadTech Advisors' Walczak said the latest deal with Nasdaq-listed AdTheorent marks a new phase in the industry's evolution, especially as CTV players seek to attract small and medium-sized business ad spend. He points out that this shows the fusion of advertising.
“I think the deal between AdTheorent and Cadent creates a more comprehensive solutions provider,” he told Digiday, explaining how the acquisition complements Cadent's heritage as a brand service provider for brand advertisers. I explained about it.
“AdTheorent offers the functionality of a mid-market agency. They are performance-based and operate on that model, which makes a lot of sense,” added Walczak. “Especially look at things like Netflix and other streaming providers [offer ad services]Therefore, we need a more powerful system that can only serve advertising campaigns. ”
Do you want to go back to private ownership?
Meanwhile, other sources pointed to the history of the deal between Cadent and AdTheorent. The all-cash deal, valued at $3.21 per share, with Morris & Company serving as Cadent's lead financial advisor, is a significant decline from its peak valuation in 2021.
Taking AdTheorent private is subject to customary approvals, and the deal marks Cadent's first acquisition since its August acquisition by PE firm Novacap, which reportedly valued the company at $600 million. ).
Some have noted that this $324 million valuation is a long way from AdTheorent's $1 billion valuation immediately after its 2021 merger with special acquisition firm MCAP Acquisition, but The entry route quickly fell out of favor.
“Zombie ad tech companies, or those with valuations well below $1 billion, are likely to be more vulnerable, especially as such companies will not be able to sustain the growth rates seen in the immediate aftermath of COVID-19,” these sources said. , it is worthless on the public market.'' Pandemic.
Ad tech companies in this group that trade well below $10 per share are considered acquisition targets at similar discounts, said one person, who requested anonymity due to his employer's communications policy. He commented that it was highly possible.
“Where the boom was in 2021 is anyone’s guess,” the source said, citing “relatively ‘cheap capital’” and the SPAC boom at the time. Valuations will return to 2017-2019 levels. ”
