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Adtech M&A heating up even as support for US privacy legislation grows

Marketers are moving away from overreliance on banner ads.

Momentum is growing for congressional action around the issue of data and privacy.

Adtech is attracting more mature M&A buyers.

The European Union's General Data Protection Regulation, or GDPR, has led marketers globally to embrace a more conservative approach to data privacy. Enacted in May 2018, GDPR requires all organizations to gain consent from online users in the EU before collecting their data. Companies must also notify data protection authorities within 72 hours of becoming aware of a breach. The regulation threatens steep financial penalties for noncompliance.

S&P Global Market Intelligence spoke with JC Uva and Mark Wagman, managing directors at Media Link LLC, a media advisory business owned by British media giant Ascential PLC, about the law's impact on the advertising technology industry.

S&P Global Market Intelligence: What is adtech's growth outlook in light of GDPR?

SNL Image

Mark Wagman, MediaLink

managing director

Source: MediaLink

Mark Wagman: If you look at adtech as the technology that simply puts another banner ad in front of you while you consume a piece of content, GDPR has massively impacted the growth of this market in terms of data collection and how that data is used to build an audience. I think what GDPR has done, at least for the clients that we work with, is force them to rethink their marketing efforts. This means moving away from simply placing banner ads in front of consumers and more about providing branded content and seeking out sponsorship opportunities. Marketers are also relying less on building intrusive audience profiles as they begin to create more contextually relevant experiences with consumers that do not require as much data capturing.

SNL Image

JC Uva, managing director at MediaLink
Source: MediaLink

JC Uva: We have seen an emergence of new ad formats and strategies. Even so, there has been little change in the driving philosophy and very little slowdown in the trend towards automation. Things are still going to be more automated tomorrow than they are today. The entire industry is now set up to take on more automated buying and trading of media.

So how does this square with the industry's efforts to regain consumer trust?

Uva: New ways of doing business, including operating models based on permission-based advertising, are starting to emerge. It is still pretty early, but if you can facilitate a permission structure with the audience, this carries a different level of value.

Wagman: The concepts of trust and consent are every publisher's challenge today when it comes to thinking about monetization, whether you are New York Times Co. or an obscure cooking blog. Every publisher in this world wants to make more money. The old world was making money on ad units. This means we saw sites that were plastered in ads, whereas today, publishers and advertisers are increasingly aligned. A brand like Ford, for example, no longer sees value in having five different ads placed on the same page. They understand that will not only ruin consumer experience on that given page or app, but also that the site could lose traffic as a result. This is going on in TV with the reduction of ad load. How do you remove ad units, make the remaining ad units more relevant and still make money?

Do you foresee support for legislation similar to GDPR gaining momentum in the U.S.?

Uva: There is a feeling building that sometime in the next couple of years, there will be some congressional action around the issue of data and privacy. This is one of the few issues that Republicans and Democrats can get together on, and any changes will have implications on a lot of players in the value chain. California is certainly leading the way. Its privacy laws are increasingly becoming the industry standard, and there is a sense right now that this could eventually trigger some sort of federal action. At the end of the day, what nobody wants is 50 states with 50 different privacy laws.

From an M&A and funding perspective, has there been a slowdown in activity?

Uva: I actually think activity has picked up. There were a couple of notable deals last year, including MediaMath Inc.'s $225 million private equity investment led by Searchlight Capital Partners LP. And RTL Group's $33 million acquisition of U.K. adtech business Yospace Technologies Ltd. more recently. I also think analysts are still generally bullish on French advertising software giant Criteo SA, which I think is a sign of confidence in the market. In fact, more mature investors have started to take a strong look at the adtech industry in the last two years. For so long, no one outside of venture capital circles wanted to go near adtech assets. It was very difficult for other investors to understand the industry, let alone make out who the winners and losers were going to be. Now that the market has stabilized and consolidated to fewer players you can kind of understand the picture a little bit more clearly. I think there is also this convergence of adtech and technology that is enabling measurement. We are still seeing a ton of interest in that side of the market.

Wagman: Overall, adtech deals are more attractive today than they were a few years ago when the market did not know what all these adtech vendors did. But every year since then, a number of businesses have folded as a result of models not working. Why the remaining players have survived and are unique in this market is because their key differentiator has always been the superior algorithms built into their systems.