Adtech M&A Prices Take A Hit After IPO Troubles in 2014

By on February 18, 2015

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Despite a spike in the number of adtech M&A deals in 2014, average adtech M&A prices are down by 42.1% since a spate of recent disappointing adtech IPOs, while overall average M&A prices were down just 10.6%. VC investment in adtech on a quarterly basis has been dropping since Q1 2013, when it hit 128 deals.

Exitround is unveiling today the first in a series of “Sector M+A and VC reports”, which take a comprehensive look at the performance of leading sectors of the economy. Our first report takes a look at the adtech sector.

A Look at the Adtech Sector

How has the poor performance of recent adtech IPOs affected the acquisition and VC investing market for private adtech companies? Exitround took a deep dive into the adtech market to examine the impact of IPOs on adtech dealmaking.

We wanted to examine the impact of this IPO turmoil on private market M&A and VC deals. We examined two time periods: the first time period, June 2013 to July 2014 was during the recent IPOs. Then we looked at the time period after the recent IPOs, from July 2014 to end of Nov 2014 to see the impact.

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From June 2013 to July 2014, there were seven adtech IPOs: Tremor Video, YuMe, RocketFuel, Criteo, Rubicon, TubeMogul. Four of the seven are now trading below their IPO offering prices. Tremor Video, for example, went public on June 27, 2013 at $10 per share and ended the day down 15% and is now trading at $2.14 amidst a struggle to shift to programmatic ad buying.

Since July 2014 there haven’t been any adtech IPOs, as investor appetite for adtech companies has slowed after the recent slate of IPOs. However 2014 was a busy year for adtech M&A as consolidation swept the market and the number of deals spiked (see Chart 4 below). And there were still some large M&A deals in the sector, such as Yahoo’s $640 million deal for Brightroll and Yahoo’s $200 million acquisition of Flurry. Facebook also acquired Liverail for a reported $400 million.

Since July 2014 there haven’t been any adtech IPOs, however.

Deals-adtech-exitroundWhat We Found

We found that average and median adtech M&A prices have dropped since the recent adtech IPOs. In other words since the last adtech IPO, M&A prices in the second period of time have noticeably dropped. This downturn in prices was also seen in the overall M&A market from the first time period to the second time period. However, overall average M&A prices were down 10.6%, while average adtech prices were down a much more significant 42.1%. Median adtech M&A prices were down 50.2%, while overall median M&A prices were down just 3.4%.

Adtech M&A Deals Chart

While adtech prices were down, the number of adtech deals ticked up slightly from the first period to the second period.(The number of deals were measured on an annualized basis to account for the different number of days in the two periods.) Looking at adtech M&A from the perspective of the number of deals shows relative strength in the adtech market since Q2 2013. Many deals are getting done and buyers are hungry for adtech companies to acquire – but large buyers appear to not be looking for as many major acquisitions but rather to fill smaller holes in their product or talent portfolio.

Adtech VC Exitround

The Impact on VC Investment

Meanwhile, looking at VC investment in adtech on a quarterly basis, the number of deals has been dropping substantially since Q1 2013, when it hit 128 deals. This could be a declining VC interest in the sector, or difficulty raising funding for adtech companies recently. Recent weakness in the public markets with adtech IPOs may be causing downward pricing pressure on multiples and comps in the private markets. Meanwhile, median VC round size has remained relatively steady in recent quarters. Average VC round size has increased in Q1 and Q2 2014, indicating that those companies that have been able to raise funding are raising more than usual in order to prepare for potential future weakness in the market or to account for a difficult IPO market.

Also, VC investing in adtech has started dropping since before the seven adtech IPOs mentioned above and before the downturn in adtech M&A prices. One explanation: venture capitalists saw the many adtech IPOs coming and decided the market was overheated.

What We Learned

There does seem to be an impact from the weak adtech IPO market on the M&A and VC investing market, as adtech prices have dropped. At the very least, there’s a strong correlation between the two. While buyers are still quite active doing deals for adtech companies and 2014 was still a banner year for the number of deals completed, they tended to be smaller deals (and we’re not even including the deals with “undisclosed” prices that typically are very small deals). The larger deals are not happening as much since July 2014 or they’re happening at lower prices. Buyers could be waiting to see how things shake out with public markets before they re-commit to larger deals this year.

Also, the M&A market overall cooled somewhat at the end of 2014, with Yahoo’s purchase of BrightRoll being a notable exception, as buyers try to understand which way the economy and stock market is moving.

A note on sources: Exitround reviewed publicly available data sources including Crunchbase, as well as Exitround’s proprietary M&A data.

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