Jan 11, 2022 - Economy

The ad tech industry's record rebound

Media, marketing and technology annual transactions, by sector
Data: LUMA Partners; Chart: Baidi Wang/Axios

A record number of advertising and marketing technology companies went public last year, according to a new report from LUMA Partners, a leading media and marketing investment firm. Deal volume among ad tech, marketing tech and digital media companies soared 82% year-over-year.

Why it matters: It wasn't long ago that investors were pulling back from the ad tech industry, fearing it would crumble as the sector moved away from tracking cookies and toward privacy-focused targeting solutions.

  • But optimism surrounding the country's economic recovery, inflated public market valuations and growth in streaming, gaming and e-commerce has investors much more excited about ad tech today than ever before.
  • "The 7 year period where the sector was out of favor enabled companies to build scaled sustainable businesses that have largely performed well as public companies," said Terence Kawaja, the founder and CEO of LUMA Partners. "This backlog explains the high level of IPOs in 2021."

Details: Most deals last year fell broadly into four categories.

  • Mobile: Last year was "the most active deal-making year on record" for mobile ad tech, per the report. AppLovin led the way with two $1 billion+ acquisitions of Adjust and MoPub. Gaming companies continued to invest in mobile apps, helping to boost the mobile ad ecosystem.
  • CTV: As free, ad-supported streaming boomed, companies focused on connected TV (CTV) ads became more attractive both to private buyers and public market investors. Most notably, Magnite purchased SpotX for over $1 billion, and MediaOcean acquired Flashtalking for $500 million.
  • E-commerce: A number of big deals were also fueled by ad tech companies expanding into e-commerce. Taboola acquired Connexity for $800 million, following its public debut. Criteo acquired Iponweb for $380 million as it continued to move away from retargeting via cookies and into e-commerce.
  • Audio: Digital content deals were led by audio companies investing in new content and advertising capabilities. Spotify acquired Betty Labs and Findaway to get into live audio and audiobooks. iHeartMedia and Audacy acquired Triton and WideOrbit, respectively, to boost their podcast capabilities.

The big picture: Part of the newfound investor optimism in ad tech companies has to do with the way the markets have been shaped by the pandemic.

  • The total addressable market has "inflected up" due to "pandemic-catalyzed accelerations in streaming, gaming and e-commerce," said Kawaja.
  • Kawaja also noted that companies like Snowflake and Shopify have succeeded in telling Wall Street that ad tech businesses, which are reliant on transactional revenue models, "are just as valuable as contractually recurring SaaS revenue models."
  • "In the last year we have seen average revenue multiples for advertising-based revenue businesses that show strong net revenue retention (NRR) match the revenue multiples of SaaS businesses," he said.
  • A growing number of private equity firms, like Blackstone, Vista and CVC, invested heavily in ad tech companies last year, with many hoping to make a profit once those companies are eventually spun out onto public markets.

What to watch: Many companies exploring ad tech deals and IPOs focus on verifying that ad dollars are spent correctly and in a privacy-focused way. IPOs for companies like DoubleVerify and Integral Ad Science last year speak to that trend.

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