What 2021 M&A Deals Tell Us about the Future of Online Advertising
While the rapid market capitalization dynamic isn't new in digital advertising, the reasons why it's happening have changed. What does it mean for the industry's future?
Opinions expressed by Entrepreneur contributors are their own.
If you're doing business in the online advertising niche, there's one trend you couldn't help but notice in 2021 — the unprecedented number of mergers and acquisitions on the market.
Let's just run a quick check on whether you missed any of this year's biggest purchases. Here we go!
- Capital Croissance bought Smart AdServer
- Magnite borough SpotX
- Verve Group bought Smaato
- LiveRamp bought Datafleets
- TransUnion bought Neustar
- IAS bought Publica
- Publicis Groupe bought CitrusAd
- AppLovin bought Mopub
And the list goes on.
As for the mergers, one of the recent noteworthy deals on the online ad market were the SPAC mergers — involving Innovid and AdTheorent, just to name a few — but again, these are just the tip of the huge M&A iceberg, driving the acceleration of ad tech firm valuations.
Related: After 7 M&As in 7 Years, I Thought I'd Seen it All. Then I Completed a Remote M&A Amind a Global Pandemic.
Why the digital ad tech market is capitalizing so fast
In spite of numerous theories and rumors spreading across the world's online ad community, there're just two key reasons why we're tracking such a rapid market capitalization within the past 12 months.
The first one is the pandemic or better to say, the rapid acceleration of evolutionary processes it has evoked in the industry. While the utmost digitization seemed somewhat inevitable even back in 2016-2018, the lock downs have made it the new reality faster than one could imagine. And this reality isn't going anywhere.
More importantly, the optimistic economic forecasts for Q4 2021 and early 2022, particularly in the U.S., the EU and LATAM countries have made the big money players even more eager to catch up with their investments in the online ad tech companies.
The second reason is the stricter privacy laws and regulations across the globe. Right when the industry seemed to have finally put up with the introduction of GDPR and CCPA, there came LGPD, CPRA, the soon-to-come-into-effect Chinese PIPL and many more. Add it to the dooming third-party cookie deprecation, and the future of effective audience targeting already looks gloomy.
In this respect, the reducing number of accessible opportunities to legally obtain and use first-party audience data in online advertising is what has been fueling the rally of purchases in this sector in 2021 (e.g. the recent sale of Twitter's MoPub to AppLovin for over $1,000,000,000).
What will the 2021 M&As lead to in 2022?
From what we're tracking right now, the market capitalization isn't likely to stop in the months to come. The dynamics will probably remain unchanged in Q1 - Q3 2022 and will be followed by somewhat a slow-down closer to 2023, having reached its plateau.
As the businesses will be putting the purchased technologies in action, we're expecting the boom of new ad tech solutions in Q2 - Q4 2022 and 2023, mostly focusing on predictive modeling features, aimed at the more efficient attribution, the automation of inventory mapping, bidding and purchase and, certainly, immersive advertising.
More importantly, in spite of the forecasted evolutionary breakthrough in the global online advertising industry, the market capitalization will NOT leave smaller companies far behind in this "competitive race."
The reasoning is obvious: the scope of ad tech solutions they're offering is usually affordable and more flexible (i.e., easier to customize) which remains crucial for small and medium-sized businesses on the market.