Eric Ward Discusses Trends In European Ad Tech And Potential M&A Activity In The Local Markets
What M&A trends are we likely to see in the European ad tech space over the coming months?
M&A activity has been picking up this year with a few notable European transactions such as Alchemy / Experian, Steak / Dentsu and more recently AdJug / Ignition One (Dentsu). We are also seeing strategic partnerships such as Turn / Experian, as a short term alternative to full acquisitions. Although there may be a few more transactions and partnerships announced later this year, it won’t be before next year until we see a more pronounced uptick in M&A activity. From the conversations we are having with some of the key players in the industry, we are seeing a growing interest from international companies, particularly US, who are looking to build a stronger footprint in Europe and also acquire leading technology businesses. The larger publishers and agencies are spending an increasing amount of their internal resources understanding how they can capture greater value from the online advertising ecosystem. We expect to see a number of those players making further acquisitions in the space.
Given the 400 million dollar price paid for Admeld, will we see more M&A activity on the sell-side?
One of the primary reasons the online advertising ecosystem is so fragmented is because publishers are still finding it challenging to fully optimise the value of their audiences and inventory. The yield optimisers have done a tremendous job in providing publishers with more value and greater transparency. The acquisition of Admeld by Google has highlighted the strategic value of the supply side. We expect to see more exciting M&A transactions on the supply side as the business model continues to evolve – companies such as OpenX are looking to offer a complete and holistic supply side solution. The supply side is a logical entry point for a number of major strategic players who want to play a greater role in the ecosystem, particularly those with strong web analytics capabilities or proprietary data assets.
Do you think there will be more consolidation? And will we see companies like Accenture and IBM getting more active in the ad technology space?
Consolidation is inevitable. IBM is already active in the space and strategically the industry would benefit if it started to have a more central role in the ecosystem. They have strong assets such as SPSS, Netezza and Coremetrics. The same applies to Accenture but there is also a wider universe of major strategics that have the potential to become large players in the industry. SAP Ventures recently invested in OpenX and that sends a positive signal to the market about some of the trends that may develop in the future. Given how valuable data is becoming we wouldn’t be surprised if several of the larger e-commerce players in the world started to make investments and acquisitions in the space. There are also companies such as Akamai, Oracle, etc who could also be long term consolidators in the space.
Ad networks are slowly evolving their model to compete in the changing display marketplace. Do you think some of the bigger ad networks will start to roll-up small-to-medium sized player to lock down supply and secure market share?
With RTB and publishers becoming more sophisticated, ad networks will have to adapt and evolve their business model – this will either be an opportunity or a challenge for them. Scale is becoming increasingly important to generate the economies of scale to bring enough value to publishers and in turn this means some of the larger ad networks are beginning to reassert how they can exploit their reach / audience in ways that newer DSPs may struggle to do. Multi-channel offerings (display, search, video, mobile, social, etc) must also be very high on their strategic agenda at the moment. As we’ve seen with Specific Media’s acquisition of MySpace, ad networks are looking to move up the value chain by owning content and data. Scalable high quality content generating platforms could be an interesting move for some of the networks.
Where do you think are the hot areas for ad technology in Europe?
All parts of the ad technology value chain are very well represented in Europe, particularly around demand, data / analytics, mobile, social as well as a couple of businesses on the supply side. There are certainly a few businesses that we are very excited about as we expect them to achieve great exits.
Do you think AOL and Yahoo will have to follow the lead of Google and buy an SSP?
Whether or not AOL and Yahoo will follow Google on the supply side is difficult to say. Putting aside the current issues at both companies, they have a very strong focus on content ownership at the moment. The fundamental question is whether it’s possible for them to operate both as a media and technology company at such a large scale. If they are committed to building up their ad tech platform then, on the face of it, it would make compelling strategic sense for both – drive higher yields for publishers and bring liquidity to their exchanges. Microsoft are rapidly scaling up their online advertising efforts following their investment in AppNexus – they would also be a logical acquiror of a supply side company.
In terms of raising capital for new ad tech ventures, do you think the market here lacks the proper networks for investing? Is that why so many good companies struggle to get investment – while their US counterparts are drowning in VC funding?
There have been a few publicly announced fundraisings in the past 12 months for companies such as Adfonic, NextPerformance, TagMan, Cognitive Match and a few more that should be announced before the year end. In general we would like to see more VCs backing ad technology companies in Europe. There are many factors that can explain why VC investment in Europe lags the US in this space. The main ones are:
There hasn’t been many European exits in the last couple of years. Until we see more successful exits, VCs will remain relatively cautious about the space. VCs are capital providers whose objectives are to find and back highly scalable businesses that have the potential to achieve big exits. In order to be a more attractive investment proposition for the larger VCs, European ad tech companies should have a pan-European or global ambition – no single European market is large enough yet to be sufficiently attractive for them to invest in.
We have to bear in mind that Google is more dominant in Europe than in the US. Investors prefer backing ad tech companies that have a defensible market position against Google. It’s important for European ad tech executives / entrepreneurs to fully appreciate this point when dealing with investors. They have to be able to clearly articulate and demonstrate the long term vision, strategy and growth potential of their business.
Given the increasing level of fragmentation in the ad tech space, PR and marketing play an increasingly strategic role in terms of raising a company’s awareness amongst prospective clients, investors and acquirors. This is an area where the US companies tend to commit more resources to than in Europe. While having a good product is fundamental to success, as often seen in this space, it’s not always the best product that wins.
Do you think there is a knowledge gap among some VCs when trying to understand the data-driven display?
The ad tech space is very complex and one of the few industries that has a non linear value chain. As a result there has historically been a knowledge gap between the various VCs but it is rapidly closing. Those that have an active interest in the space are very knowledgeable. We have been seeing more recently a growing interest from private equity investors. A few of the larger private equity funds in the world are starting to explore whether there is a consolidation / roll up opportunity in the European ad tech space. This is a very positive signal for the market.
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