M&A sector analysis
Personalisation, control and content are the big drivers of marketing M&A, writes Results International's Paul Georges-Picot
It will come as no surprise that technology expertise is continuing to drive which marketing services companies are of most interest to buyers. There were 1,410 marketing industry deals in total in 2019, a 9% increase from the previous year, of which 557 were in martech/adtech. In fact, last year saw the number of martech/adtech deals jump by 37% compared to 2018.
While the most active sector in 2019 remained advertising and creative agencies, marketing and sales technology came second with 227 deals. Within that area, marketing automation and customer data platforms was the most active sub-sector at 135 deals.
It highlights a trend that underpinned a lot of 2019 activity: the focus on personalisation and identity resolution, which has led to a greater focus on CDPs and other companies that have the ability to unify disparate data sources to create a single customer view. And this isn’t going to end in 2020 – as we’ve already seen a $32m fundraising in January from CDP ActionIQ.
Brands taking back control
Google’s recent announcement about ending third-party cookies also highlights how brands in 2020 will need to find new data points they can use to identify people in a privacy-compliant way. It also suggests the long-discussed ‘death of the cookie’ may be closer than we thought – and reinforces that when Google and its peers change how they operate, everyone has to take note.
After all, around 70% of combined US ad spend goes to Google, Facebook and Amazon, so there is significant interest in businesses offering expertise for these platforms. Conversely, other brands are becoming disillusioned at having to cede control of their customer data to GAFA. Last year we saw some big global brands looking to take back control of aspects of their tech stack in order to improve the customer experience.
A number are realising that they either need to build their own identity graph or partner with a vendor that can do it for them. Walmart looked to better position itself as an e-commerce alternative to Amazon with the acquisitions of Aspectiva, Polymorph Lab and parts of Triad, while McDonald’s acquired Apprente and Dynamic Yield and Nike acquired Celect, a leading retail predictive analytics company.
In addition, Paypal made its largest deal to date in acquiring Honey for $4bn, further expanding its presence in customer journey optimisation.
Be content with your content
Last year also saw a significant increase in global M&A activity involving content production companies, more than doubling from 35 acquisitions in 2018 to 82 in 2019. In the final weeks of 2019 alone, Blackstone invested £100m for a minority stake in content development house HH Global and Tech Mahindra acquired retail content production agency BORN Group for $95m.
This interest comes from the vast growth in formats and devices seen by brands in recent years, which has led to a broader range of communications needs. Advertisers need to think big but hit small on an always-on basis. Acquirers want companies with the ability to produce a wide range of personalised content at scale on multiple devices and in different markets.
Video and connected TV content in particular is increasingly sought-after, thanks to the expansion in streaming and OTT services.
PE remains strong while holdcos are on hold
Private equity accounted for roughly a quarter (24%) of total marketing M&A in 2019 (338 deals), jumping by almost 94% from 2017. While PE investors are primarily attracted to martech due to its SaaS revenue model and high gross margins, they have traditionally been more cautious when it comes to investing in adtech.
This is due to a larger mix of transaction-based revenue models, less direct relationship with brands, increased privacy compliance issues and the dominance of the triopoly (Google, Facebook and Amazon).
However, this has not impeded private equity firms from making investments in high-quality adtech assets. For example, Blackstone’s $750m acquisition of Vungle in July and Providence’s $222m majority investment in Finnish social media firm Smartly.io in December.
At the same time, the traditional holdcos reduced their deal activity last year to focus on internal restructuring and acquiring tech-enablers rather than technologies themselves. Only Dentsu made the top buyers list with 12 acquisitions in 2019 – a far cry from the 34 deals it made in 2018.
What else 2020 holds
The current trends, such as personalisation and the growth in demand for quality content (video in particular), are set to continue in 2020. There will also be a need for measurement/analytics tools to create solid ROI metrics for all this activity.
But also keep an eye out for Amazon’s increasing adtech spend, which will see more demand for companies that can help brands optimise their Amazon strategy the way SEO firms do with Google. It wouldn’t be surprising if that was another major growth area over the coming months.
Paul Georges-Picot is director at global M&A and fundraising advisors Results International