What's Driving Advertising M&A in the Year AheadThe evolving media landscape is creating new opportunities for revenue, influenced by several converging factors. This has laid the groundwork for unprecedented advertising-related M&A activity this year.
ByRajeev Goel•
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Last year saw a boom for mergers and acquisitions — a stunning139% increasein the U.S. compared to 2020. Deal volumes broke records with5.8万亿美元worth of M&A activity in 2021, driven primarily by digital transformation, access to capital, a recovering global economy and labor shortages. This "supercharged" M&A environment will likely continue in the foreseeable future.
Perhaps not surprisingly, technology and telecommunications deals accounted for nearly 20% of M&A activity last year, includingmore than 2,000media-related deals worth $189.7 billion. Notable major transactions included AppLovin acquiring MoPub, Microsoft acquiring both Xandr and Nuance, and Integral Ad Science buying connected TV advertising platform Publica, along with other multibillion-dollar deals.
The evolving media landscape is creating new opportunities for revenue, as evident in last quarter's earnings from Amazon to Walmart. Advertising is a major source of this revenue, and in some cases, such as元, the source of challenges. These results, influenced by several converging factors, have laid the groundwork for unprecedented advertising-related M&A activity in 2022.
The first catalyst of anticipated media consolidation centers aroundprivacy regulations。数据代表一个valuable currency in advertising, allowing advertisers to effectively transact against specific audiences. Consumers today are increasingly aware of how their data is used, driving both regulation (such as GDPR in Europe and CCPA in California) and business policy changes that offer consumers informed choices (Apple and Google's changes to privacy on mobile devices, for example).
Related:What 2021 M&A Deals Tell Us about the Future of Online Advertising
Naturally, data regulation varies greatly around the globe, often creating barriers to operate in new markets. This unalterable fact is a powerful incentive for M&A, as it allows an otherwise hamstrung organization to expand their geographical footprint by acquiring an established operation already adapted to the region's unique regulations. Additionally, the rapidly increasing value of first-party data will also fuel deals. It's why we're seeingretailers enter the advertising spaceat an unparalleled pace. Enterprises with access to first-party data can generate value through advertising, as Amazon'slatest earnings breakoutof their advertising revenue proved quite emphatically.
The opportunities in this high-growth market are similarly influencing deals. The remarkably rapid growth of digital advertising (now representing two-thirds of all advertising) is attracting new players to the space at a correspondingly rapid pace. Last year, we saw Walmart, Instacart and Nordstrom expand operations into advertising, immediately resulting in strong new revenue streams. While some organizations have partnered with ad tech companies to fuel revenue expansion, others will turn to M&A. Simply put, acquisitions strong high growth potential provide a proven means for revenue growth. Organizations with first-party data can monetize that critical asset via ad tech acquisitions, as TransUnion demonstrated with its $3.1 billion acquisition of Neustar.
Evolving consumer behavior, namely the fragmentation of devices, will also continue to impact consolidation. The pandemic clearly altered how audiences consume content, with increased time spent on digital devices and the emergence of new streaming options. Today's information access diversity creates complexity for both advertisers and publishers, as the desire to reach audiences acrossallchannels — TV, digital and mobile — makes it more difficult to manage strategies and technology solutions. Combining operational processes in support of omnichannel advertising will almost certainly drive further media industry M&A.
这种催化剂是由于日益增长的预期to deliver advertising across channels — influenced by both the needs of advertisers and the preference to forge relationships with vendors capable of simplifying the supply chain. In short, the ad tech supply chain is complex. To simplify it, larger brands must acquire point solutions to maximize their footprint across the digital supply chain. Media companies that focus on a specific vertical (i.e. connected TV/CTV) are more attractive acquisition targets for companies seeking to enter the market, as evidenced by AppLovin's recent $430 million acquisition of CTV software platform, Wurl. Smaller players with a singular focus are ripe targets and will likely dominate acquisition deals in the year ahead.
Strategic acquisitions also provide a mean to achieve scale, which is increasingly important in today's marketplace where advertisers are consolidating on fewer, larger, more high-quality supply partners. Implementing sophisticated quality control measures is an expensive endeavor, often requiring costs that smaller companies cannot afford such as money-back guarantees, particularly in emerging ad formats. The growing supply path optimization trend, or simplifying the supply chain, is compelling customers to work with fewer partners that offer quality, control and efficiency. Scale is a major part of that offering.
More than 10 public ad tech companies are now valued at more than $1 billion, comprising the upper echelon of the industry. The desire for and competitive benefits of more mature, more scaled solutions for publishers and advertisers will continue to fuel media M&A going forward. Add to this the need for greater efficiency as tech vendors integrate and eliminate redundant costs, and you have an industry ripe for landscape-altering mergers and acquisitions.
As consumer behavior and the technology powering media revenue continues to evolve, consolidation will also reflect future supply chain needs for the industry. Clear winners will naturally emerge, and the inevitable consolidation will permanently reshape and redefine the media industry.
