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    ‘Time to go on the offense’: In a choppy ad tech M&A market, strategic investors eye deals

    Investors may be few and far between in ad tech these days, but that doesn’t mean the same can be said for deals. There are still many of them to be done. Not just for the right price, but increasingly for the right investor. Namely, the strategic ones; those that aren’t just in it for the money. 

    For many of these businesses, it’s a good moment to put their corporate development teams to work.  

    There are fewer private equity investors to compete with, for starters. And many of these strategic investors are currently sitting on millions of dollars of uninvested funds. Better to put that money to work, the thinking goes, since organic growth is so hard to come by these days. Look at the recent flurry of deal activity for proof.

    Publicis Groupe figured the old ways of running a profitable ads business are still the best ways so it acquired affiliate network Vivnetworks earlier this month. Ad filtering firm Eyeo doubled down on that most surest of business models — a two-sided marketplace — when it bought a business that helps publishers recover revenue lost through ad blocking a few weeks back.

    If that wasn’t indication enough of where the momentum is in dealmaking in ad tech, MiQ is also on the lookout for companies that can bolster its businesses on the back of an influx of capital into the business. Speaking of strategic opportunism, Samba TV swooped in for artificial intelligence startup Disruptel at the turn of the month. 

    The list goes on. Criteo, S4 Capitali, Lumen, Cavai, Ascential and OpenWeb to name a few. Different names, same story: deals done by companies that have fared relatively well to date in the downturn, as in their share prices have held up and their balance sheets remain solid.

    Expect more, not less, of the same thing next year. That forecast came through loud and clear at an event hosted by investment firm First Party Capital earlier this month. The logic here is pretty simple: downturn or not, so long as a deal remains accretive it’s going to be one of the fastest ways to increase market share in existing areas or to expand into newer ones. 

    “This is the time for these businesses to go on the offense,” said Joshua Wepman, md of technology investment banking at Houlihan Lokey at the same event. 

    This doesn’t mean the M&A boom times are back. The scarcity of deals has put paid to that. Rather, the white hot acquisition vibes that engulfed the previous M&A cycle in ad tech have been replaced by something more measured. Remember, few businesses can afford to make big bets now in the current economic and regulatory climate.

    Sure, Criteo’s bet on ad tech developer IPONWEB is undoubtedly a big one, but it’s an outlier in a raft of lower key, strategic acquisitions and partnerships this year. Additive, not transformative, seems to be the underlying rationale for a lot of the deals these days. 

    It certainly was for the likes of Publicis that have focused recent M&A efforts on older marketing efforts it knows marketers will continue to spend dollars against. 

    Granted, tried and true isn’t the only route for companies on the acquisition trail. Other investors like Integral Ad Science and Azerion are making calculated gambits on how where the ad dollars are going to fall once the market shakes out, eyeing the areas du jour like CTV, retail media, gaming and identity as investment opportunities. 

    Combine all this with the fact that the U.K. government’s now infamous “mini budget” has caused sellers’ price expectations to drop and buyers’ views on value to widen, and it’s clear that this is a more pragmatic wave of M&A. 

    Keep in mind that this is a liberal use of the word “pragmatic” given the moves made by the venture capital firm-cum-ad-funded entertainment business Azerion. So far this year it has done eight deals, continuing a buy-and-build strategy it has employed since it was founded in 2015. For the dealmakers at Azerion, the pace of M&A remains high and the funnel is well filled. 

    “The mindset in the market has switched from one where it was hard to get real, concrete deals done because of high valuations to one where people want to get deals done now rather than wait to see how the economy develops,” said Joost Merks, group chief investment officer at Azerion. “That’s been more noticeable since the end of the summer.”

    But the fun doesn’t stop once the deals are done and dusted. There’s the thorny challenge of integration to work through. Doing so is far from straightforward for buyers. There are too many dashed hopes and wistful hot takes to say otherwise.

    “Transparency and trust is the key to a good integration as in the whole thing starts with both sides being willing to open the kimono,” said Grayson Lafrenz, founder and CEO of Power Digital, which has recently completed four deals. “There are a lot of companies that don’t do that. They’re very transactional as in that they do the deal and then it’s on to the next one. Once a deal closes the work has only just begun. You have to make sure that the thesis happens.”

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