The Impact of M&A deals in AdTech Amidst COVID-19 Pandemic

The year 2020 is facing global problems like pandemic, race riots, or recession. In the early days, many advertisers have pulled back in many areas because of the fear and uncertainty but surprisingly the projected slowdown on the ad spend is minimal, pointing towards a stable and steady growth in the future. The stock performance of adtech and mar-tech companies have performed well despite the crisis. Adtech is witnessing a consolidation phase but how effective will be dealmaking in this pandemic is the next obvious question. Read here to know more.

Dealmaking In Pandemic

Luma Partners’ Terrence Kawaja, ad tech’s top investment banker pointed at Adweek’s NexTech 2020 Virtual Summit that dealmaking dropped to almost half in the pandemic where many of them were legacy deals which were already in pipeline pre-COVID. The dealmaking was substantially down in Q1 and Q2 and is expected to further reduce in the third quarter due to short-term lack of confidence owing to the current crisis. However, dealmaking activities have picked up again and will see more toward the end of 2020. Kawaja also said,

“Based on our pipeline and what we’re seeing in the marketplace, buyers are back in and looking for deals.”

Where are we seeing these new activities coming from?

Kawaja provides key insights on a potential impending wave of industry consolidation and 5 market segments that are driving M&A deals – Connected TV, Identity, Mobile App, Audio, and what he termed ‘Programmatic End Game Consolidation’ and further elaborated on it.

1. Connected TVs:  CTV is over a USD 100 billion market that is growing rapidly and by next year it will be 50% addressable. CTV viewing was up in the pandemic and there is a shift in consumer viewing from linear to streaming mainly due to the loss of live sports. USD 70 billion ad spend from linear is shifting towards OTT channels. Major companies are keen to take advantage of the changing scenario with the right technology. With an accelerated shift to streaming, CTV deal activities are picking up.

2. Identity: The core to 360-degree marketing witnessed many privacy regulations and data restrictions from big tech like Google Chrome turning off cookie to Apple’s IDFA deprecation, presenting challenges like limiting targeting in the open-web and measurement. At the same time, there are opportunities like first-party data and resurgence of contextual targeting. Large companies position for privacy-centric data capabilities and predict strategic opportunities in consumer data deal activities.

3.Mobile App: Mobile advertising continues to take share with substantial gains over the last 5 years. A lot of in-app is driven by gaming. A spike in gaming will be witnessed during COVID with 1.2 billion weekly mobile game downloads with people having more time in hand in the lockdown. The latest challenge that companies are trying to sort out is the IDFA deprecation in the iOS 14 update. Deal activities will continue in mobile apps provided there are new opportunities.

4. Audio: Podcast has undergone tremendous popularity in the last 5 years with 104 million monthly podcast listeners. The monetization has grown even faster and is still in the early years that has the potential to grow further. The rise in podcasting is driving many more audio deals. Many substantial deals have already happened mainly by Spotify and are expected to continue.

5. Programmatic End Game Consolidation: Every industry goes through three generic phases: new company formation, maturity, plus rationalization and consolidation. However, in the adtech industry, the process is “on steroids”. Thousands of companies initially flood the adtech market with an abundance of venture capital and easy market entry, and with early successes follows a rush of IPO’s. Large consumer data companies take advantage of the large, matured, and growing market for scale and profitability. Kawaja says the net consolidation in ad tech started in 2015 and further adds,

“We’ve been on that rationalization push for the last five years.”

He sees this is the final phase -the end-game-of consolidation soon which will be accelerated by the pandemic which will get to fewer players with larger spend and lower-tech rates. 

“This will clean the ecosystem with fewer players that are more sustainable with a better market cap. Consolidation on  DSP side – Trade desk with 20 billion market cap is the evidence for the final phase.”

If his projection comes true then there will be some activities after a long pause in the deals. Following that, the M&A  sprint is likely to exit the industry.

 Read more: A One-stop Guide On All You Ever Need To Know About AdTech In 2020