Why are martech and adtech driving M&A?
Paul-Georges Picot looks at how left-field buyers seeking to add data-driven personalisation to their portfolio are impacting the sector's M&A activity
It’s been a strong year so far for M&A in the marketing sector. There were 1,057 global deals in total from Q1 to Q3 2019 – up 16% on the same period in 2018. But while deal volumes in marcoms stayed fairly flat, martech and adtech were the main drivers of M&A growth last quarter: jumping 52% in aggregate versus the same period last year.
The growing appeal of marrech and adtech
There are a number of factors driving the growth in interest in martech businesses. An increasing need for marketing automation, particularly for SMEs, has seen businesses like Kapost and Salesfusion snapped up this year. Private equity buyers are also looking to build platforms, with the likes of AKKR buying SugarCRM and Thoma Bravo acquiring Qlik.
At the same time, personalisation is becoming more valuable than ever as brands seek to learn more about who their customers are and what they want. We’ve seen record high fundraising levels among CDP/identity resolution providers like Segment, Videoamp and Tealium.
In fact, some rather left-field buyers have come into the market in 2019 looking to add data-driven personalisation to their portfolio: these include McDonald’s acquisition of Dynamic Yield, Nike buying Celect and Veeva’s acquisition of Crossix.
On the adtech side, activity has been driven by growing interest in video. It continues to be the most engaging format and programmatic TV ad spend is experiencing exponential growth (up by 239% in 2019, according to eMarketer). Acquisitions in the space in Q3 include Dalet picking up the online video distribution assets of Ooyala and Somo Audience being acquired by IZON Network.
Measurement and analytics companies are also still in demand as they help drive towards the triple objective of an always greater need for ROI, improved brand safety and less fraud. This was illustrated in Q3 2019 by the acquisition of Libring Technology by AppAnnie and Bidstack’s acquisition of Minimised Media, an ad verification and malware protection software solution.
In addition, 2019 seems to be the end of the consolidation in three long-standing subsectors of adtech: DSPs, DMPs, and content recommendation. While DMP consolidation started almost 10 years ago, the acquisition of listed DMP and content personalisation platform Cxense by Piano Software in August leaves Lotame as the only independent DMP in the market.
But although adtech deals grew quite significantly in Q3, we should take it with a grain of salt as the same secular trends prevail: the triopoly (Google, Facebook and Amazon) continue to rake a disproportionate percentage of new advertising spend, while CCPA is around the corner and GDPR is now in full swing.
A fall in holdco deals?
Overall, for the first nine months of 2019, the top buyer was Dentsu with 10 acquisitions, followed by private equity house Insight Venture Partners. Ranking third was Accenture with seven deals.
So where are the other big holding companies? Some, like WPP, are focusing on internal restructuring – being more agile and putting together dedicated teams leveraging their best assets/people to better serve their clients. There has also been less volume but greater value in recent months, as the acquisitions of both Acxiom and Epsilon were multibillion dollar deals.
At the same time, we’re seeing more competition for the same assets: recent buyers include consultancies, midmarket marketing groups such as S4 and You & Mr Jones, private equity firms, cloud companies and now strategic acquirers like McDonald’s and Nike.
But don’t think the holdcos are out of the picture. WPP might not make as many acquisitions as it used to, but Dentsu is still very strong and Havas and Publicis both acquired five companies this year. Given that Omnicom and IPG were always more focused on organic growth, it would be wrong to think that holdcos aren’t still looking to acquire quality assets.
The winners in 2019 so far
What’s become increasingly evident is that a lot of buyers are looking to fill similar gaps in their portfolios. For one, thanks in part to zero-based budgeting, they want marketing automation to provide better, cheaper and more efficient tools.
For example, email marketing alone saw eight deals in Q3, providing further proof that email continues to be the most effective way to engage with customers on an individual basis and in a privacy-compliant way.
In addition, identity resolution is the key to personalisation and omnichannel marketing, which is fast becoming the standard for the industry. Meanwhile, video continues to be the most engaging advertising format with the best viewability. This is further increased by the growth in over-the-top (OTT) media services.
Add to those the increasing desire for better tools for measurement and analytics, and it’s little surprise that 2019 has seen so much M&A activity to date. It’s also unlikely to die down in the foreseeable future.
Paul-Georges Picot is a director at Results International