Deal activity and public offerings in the advertising and marketing technology industry are rising as the sector gets a boost from a flush of available capital and companies looking for a share of a growing digital ad business.
In the span of roughly 48 hours starting Wednesday, there was a rash of activity in a category that was once largely written off. Content recommendation company Outbrain Inc. announced its IPO, ad verification company Integral Ad Science Inc. made its debut on the stock market and Magnite, a business focused on helping media companies sell ads, closed an acquisition of connected TV ad server SpringServe.
Ad tech facilitates automated digital ad buying and targeting, while marketing tech generally supports longer-term efforts such as customer relationship management.
Investors in the past decade or so shunned ad tech as the sector’s companies struggled to compete with ad giants like Alphabet Inc.’s Google and Facebook Inc. and to evolve their businesses to rely less on manual labor and more on self-service models. The industry was marred with bankruptcies, with chapter 11 filings from companies such as Videology in 2018 and Sizmek Inc. in 2019, and confronted by challenges related to changing privacy expectations and rules.
But the industry has regained its mojo, fueled by a rise in digital ad spending and cheap borrowing. New entrants are gunning for a share of the digital ad market, too, including media companies and retailers with growing online divisions.
“This sector has been out of favor for so long and largely has been ignored,” said Terry Kawaja, chief executive and founder of investment bank Luma Partners, which focuses on ad and marketing technology. But a recent surge of public and private investment in the category indicates there has been a change in tune, he said.
Four years ago, there were just a few public ad tech companies, and only one of them had a valuation of over $1 billion, Mr. Kawaja said. Now, there are a dozen such companies trading at over $1 billion, and likely more to come, according to Mr. Kawaja. Luma is launching indexes to track the public companies in ad and marketing tech, he said.
Ad- and marketing-tech companies including Pubmatic Inc., Viant Technology Inc., AppLovin Corp. and DoubleVerify Holdings Inc. have already completed public offerings in recent months. More recently, ad-tech firm Innovid Inc. announced plans to go public through a merger with a special-purpose acquisition company. And Outbrain competitor Taboola began trading earlier this week following a SPAC deal.
An evolving sector
Deals in ad tech and martech are growing in number following a lull during the pandemic, meanwhile, and were up 174% in the second quarter from the same period last year, according to a report released by Luma on Thursday.
Media companies betting on streaming TV services to connect advertisers with cord-cutters have helped boost deal making. Last year, NBCUniversal parent company Comcast Corp. acquired Beeswax and Roku Inc. this March agreed to purchase Nielsen’s advanced video ad unit.
Retailers are also entering the fray as they grow their digital commerce operations and compete with Amazon.com Inc. Walmart Inc. this year agreed to buy automated ad creation technology from Thunder Industries, for example, while Amazon itself in 2019 bought Sizmek’s ad-targeting and automated ad creation technology.
“There’s more room to grow the pie overall, and digital advertising is going to become the default as every media channel becomes digital,” said Prohaska Consulting Chief Executive Officer and Principal Matt Prohaska, who focuses on the advertising and marketing tech industry.
U.S. digital advertising spending is expected to increase 25% this year to over $191 billion, according to a forecast from research firm eMarketer.
Investors have money to spend, Mr. Prohaska added. This year, multiple clients who never invested in ad or marketing technology have expressed interest in the category, he said.
Investors are looking at examples such as Trade Desk Inc., said Mr. Prohaska. The company, which focuses on automated ad buying, has achieved a market cap of over $35 billion since going public in 2016.
The category is also getting a lift from the broader technology industry, said Brent Thill, tech sector leader for software and internet research at Jefferies. “The overall tech market is white hot and valuations have gone into outer space,” Mr. Thill said. “That’s helping the ad tech space.”
To be sure, many ad tech companies face an uphill battle as they evolve their offerings to help advertisers and publishers navigate new privacy rules, as well as future ad-targeting changes from Google.
And as ad tech companies experience multiples once reserved for the best software companies, investors should remain skeptical, said Mr. Thill.
“It feels almost too good to sustain,” he said.
