First, let’s set the stage: There’s a growing buzz about a resurgence in dealmaking activity. Banks are getting involved, rumors are flying left and right, and actual deals are being inked. All signs point to deals reaching a tipping point. However, the big question remains: When will this tipping point actually occur? No one wants to make a move too soon, given the uncertainties surrounding borrowing costs, industry dynamics and the political landscape.
But hold up — how long has this thaw been happening? On the surface, it seems like a relatively recent shift — since the turn of the year, with notable deals like Walmart’s $2.3 billion splurge on Vizio, Triton Digital nabbing AI brand safety startup Sounder and LiveRamp investing $200 million in Habu. However, dig a bit deeper, and some argue it dates back to last summer. Ad tech economist Tom Triscari, for instance, points to DoubleVerify’s acquisition of Scibids. The ad verification firm paid a 44% premium on enterprise value and 16x EBITDA — a move that seemed fair to many in the industry.
As for when things will become clearer: Well, nobody has a crystal ball for when the deal market properly takes off, but let’s just say investment bankers and advisors aren’t penciling in any extended vacations for the second half of the year.
Surprising, isn’t it? But it’s better to wait as long as possible on issues like interest rates than to jump the gun too soon. Move too early and dealmakers could be left stuck with acquisitions that leave them more exposed to competitive pressures, market volatility and even reputational risks.
So, what needs to settle before M&A deals hit their boiling point? The cost of borrowing money is a significant factor, for obvious reasons. Politics could also play a role, especially considering the uncertain future of figures like the Federal Trade Commission’s Lina Khan, should Donald Trump win the presidential race. Then there are the seismic shifts happening at an industry level. From the loss of third-party addressability at scale to the shifting landscape of measurement and the convergence of trends like CTV and retail media, dealmakers are striving to anticipate and navigate these changes ahead of time.
Why are those industry shifts that important if there’s still so much uncertainty over them? Triscari puts it well: “Let’s say there’s a 10-year old ad tech company. It’s been built on a free economic good called third-party cookies. Now that so-called free good is not free, those cookies are going away. Everything has changed. A company like that has three options: one, re-invest; two, reinvent to stay in the game and find growth; three, sell now; die a slow death. It looks like AdTheorent took the second option at a 16x multiple when the S&P is trading at 23x. For its new owner Cadent, it appears to have done option two to win option one.”
That’s one side of the M&A coin.
“On the other side are companies born around 2018, built for the future, with revenue growth beating the overall digital ad market growth rate (about 10%) and profitable,” said Triscari. ”These companies are likely much more valuable. Time will tell how much.”
Does that mean we should expect the losers to outnumber the winners over the next M&A wave? Again, it’s too early to tell. What is evident, however, is that investors, particularly private equity ones, are contemplating what the market might look like in four or five years’ time, once they’ve completed their investment cycle. This period will be characterized by further channel fragmentation, the proliferation of AI tech and privacy concerns. Investors want visibility on how these issues will impact their investments by the time they’re ready to realize returns. However, there’s also concern that the combination of financial firepower, frustration and fear of missing out could lead to some rash decisions. Recent history suggests that this is a real possibility.
In other words, due diligence is the name of the game here? Correct. But that shouldn’t be a surprise. There’s been a lot of talk about investors returning to basics since as far back as 2022. To put it simply, they’ve shifted their focus from prioritizing growth over profitability. Gone are the days when inefficient ad tech companies were rewarded solely for their rapid growth. Nowadays, investors are seeking a more balanced approach, as Charles Ping, managing director at Winterberry Group, noted: “This reset involves understanding whether the businesses they’re considering are genuinely profitable. Part of that involves determining whether the ‘U’ in a company’s ‘USP’ is actually ‘unique,’ because investors want to know how defensible properties are going to be against the various forces that are changing in media.”
So, where does this leave us? The slow quarter in Q1 is done, and dealmakers are gearing up for a livelier second quarter. With more money in circulation, courtesy of pay increases and lower utility prices, and borrowing costs dropping, marketers are eager to spend. This surge in spending will inevitably impact the ad tech companies facilitating it. In the U.K., M&A is expected to ramp up as buyers base offers on two quarters of solid metrics. Meanwhile, in the U.S., dealmakers are already there — it’s just a matter of the rest of the market catching up.
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