Contact: Scott Denne
While companies that help publishers sell ad space have commanded high multiples in recent transactions, businesses on the demand side haven’t seen similar outcomes. With few obvious buyers in that latter category of ad tech, the situation is unlikely to change in the next quarter or two.
Businesses like LiveRail, SpotXchange, FreeWheel Media and Nexage, which sell yield management, ad exchanges and other supply-side tools to help publishers make the most of their inventory, have commanded premiums of 6-10x trailing revenue in transactions well north of $100m. On the demand side, companies that place advertisements have seen fewer big deals, and those that have happened came in at lower multiples, like the 1.3-3.7x trailing multiples in sales for firms such as Adconion and Conversant, similar to the multiples of demand-side players on the public markets.
Why the disconnect between exits for companies that enable the buying and those that enable the selling of digital media? There are, of course, vertical- and company-specific factors that account for some of the difference in valuations. In the big picture, there is just a larger pool of companies, from Internet giants to traditional media companies and broadcasters, that are comfortable with the business of selling ad space – but historically, only ad agencies have been in the media-buying business, and they’re not buying tech companies.
Long term, the exit window for these demand-side players will open up because there are many high-growth businesses with more than $100m in revenue in this category, such as Turn, MediaMath, DataXu and Quantcast. With the exception of WPP Group, ad agencies have preferred to be customers, rather than owners, of media-buying tech – and that situation isn’t likely to change until they see a credible threat from ad-tech companies selling directly to customers traditionally served by agencies.
Over time, we expect enterprise software companies to drift beyond marketing software and into paid media, as the line between paid and earned marketing begins to blur. But today, most aren’t comfortable being in the media business.
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