Contact: Scott Denne
Inflated stock value on China’s exchanges and a belief in a coming currency devaluation continue to fuel a boom in overseas M&A from the People’s Republic. The latest acquirer to add to that trend is Beijing Miteno Communication Industrial Technology, which announced the purchase of Media.net, a contextual advertising technology firm, for $900m in cash. With more than four months left to go in the year, China-based buyers have crushed their previous record on foreign acquisitions three times over by spending $13.1bn, compared with $3.7bn in all of last year.
We expect such deals to continue, particularly in ad-tech, as vendors in that country widely anticipate an eventual devaluation of their currency. Whether such a devaluation will occur isn’t known, but it’s generally accepted by much of the business community in the country and that has been a factor in the sudden spurt of M&A.
China-based acquirers have been particularly aggressive in their pursuit of ad-tech companies like Media.net. These businesses play well into the arbitrage strategy that’s driving much of China’s overseas acquisitions. The buyer trades at 12.6x trailing revenue on the Shenzhen Stock Exchange – adding Media.net at a 3.5x multiple should boost that nicely. That’s a dynamic we’ve seen in several, though not all, such purchases.
Advertising technology plays well in that arbitrage strategy and those businesses have become popular targets for Chinese shoppers. On a revenue basis, valuations tend to be lower in ad-tech than other tech sectors because gross margins are lower – 15-25% gross margins are quite common. Also, a recent dearth of US acquirers for those assets has driven prices even lower. According to 451 Research’s M&A KnowledgeBase, the median historic multiple on ad-tech transactions is 2.7x TTM revenue. That has dropped to 2.2x in the past 24 months.
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