2. Confidential
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State of the Advertising Industry
Recent Trends and Transactions in the AdTech Industry
Public Companies and Select Recent AdTech M&A and Private
Placement Transactions
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Agenda
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Period of Major Disruption and Opportunity in the Advertising Industry
The advent of digital, mobile and big data technologies is causing dramatic changes in the advertising industry
Advertising / Marketing / Customer Relationship Management has now become a “CEO” level strategic issue. It no
longer represents simple “tactical” spending on which TV program to advertise on and/or how to figure out which
50% of the marketing spend is accountable
CMOs must work harder to understand technology & its uses for marketing. The days of delegating this to the CTO
are over
‒ Advertisers in Control
‒ Mass oriented ads pushed to Consumers
‒ Minimal targeting or knowledge about ad
effectiveness
‒ Creative “ruled”
‒ “Superbowl ticket” relationship between ad
exec and CMO client
‒ Agency served as middleman between client
and all other marketing related vendors
‒ Consumers in Control
‒ Ads are increasingly personalized and
targeted based on specific consumer
behavior
‒ Effective consumer engagement “rules”
‒ The “CMO’s table” is increasingly crowded
and competitive…not just about Superbowl
tickets anymore
‒ Other marketing vendors bypassing agencies
and building direct-to-client relationships
MAD MEN DAYS TODAY
Source: AGC Partners
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The increasing role of digital and big data technologies in advertising has changed the dynamics of
the traditional ad agencies’ relationships with their CMO clients
Traditional Ad Hold Co.’s
- Stuck in “Mad Men” Days
- Don’t want to own tech
- Highly unattractive acquisition
structures →hard to invest in growth
Consulting Firms
- Marketing is now key strategic issue
for CEOs
- These firms have the logical “ear” to
the CEO & CMO
- As campaigns become more data
centric (less creative), they are a
huge threat to the agencies’
traditional CMO relationships
CMO
- More tech focused
- Ability to be more effective and
efficient with marketing spend
- Customer experience and
lifecycle analysis approach
Software / Mk. Automation
- Similar theme to ad tech with
email & creative automation & big
data analytics as the core
competency to what they bring to
the CMO
AdTech
- Key drivers in use of data to change
marketing process
- Consolidation leading to scale & a few big
industry leaders
- Complex to understand with important
ramifications if wrong → CMO’s team needs
to understand
Traditional Media/Vertical Market
Expertise
- Less developed theme but some specific
examples
- Publishers see marketing as a way to
improve declining traditional media revenues
& creative synergies
- Some firms building integrated vertically
oriented solutions to compete against more
general traditional relationships
Source: AGC Partners
Period of Major Disruption and Opportunity in the Advertising Industry
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Ad spending across major media channels in the U.S. is expected to total $183 billion in 2015
When marketing services spending is added in, the total spend is expected to be approximately
$407 billion
U.S. Ad Spending Forecast (a)
Source: (a) ZenithOptimedia (Advertising Expenditure Forecasts, June 2015)
Size and Growth Characteristics of the U.S. Ad Industry
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Size and Growth Characteristics of the U.S. Ad Industry (a)
Traditional ad spending excluding digital was relatively flat in 2013 and 2014 and is down 2-3% per
quarter in 2015
Digital ad spend was up 18-20% in 2013 and 2014 and is up 17-22% per quarter in 2015
Some of the stats around traditional ad spend are pretty bleak
Print ad spend has declined $54 billion since its peak
Consumer magazine ad spend has declined in 15 of the last 17 quarters
National TV ad spend growth has slowed for six consecutive quarters
Newspaper ad spend has declined for the past 35 consecutive quarters including double digit declines in Q2 and
Q3 2015
Source: (a) Goldman Sachs Research – 2015 Quarterly Ad Monitor
US Advertising Growth by Media
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Size and Growth of the U.S. Digital Ad Market
Digital Marketing in the U.S. is expected to increase 12% annually from $57 billion in 2014 to $103
billion in 2019 according to Forrester Research. It represents 27% of all ad spend in 2015
Search will continue to dominate the spend (54% of 2014 total & 44% of 2019 total)
Spending on mobile and social are the big growth drivers
Source: (a) Forrester Research: US Digital Marketing Forecast, Nov 2014
(b) Salesforce 2015 State of Marketing Cloud
US Digital Market Forecast (a) Areas of Increase and Decrease in 2015 Budget (b)
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State of the Advertising Industry
Recent Trends and Transactions in the AdTech Industry
Public Companies and Select Recent AdTech M&A and Private
Placement Transactions
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Source: Ad Age Annual Agency Report, CapIQ, Yahoo! Finance
2013/2014 Ad Tech IPOs Changed the Industry Dynamics
There was a wave of Ad Tech IPOs in 2013 and early 2014
For the most part, the early ones were high flying stocks based on “Big Data Meets the Advertising
Market” theme and big growth dynamics
Most stocks did well for awhile and then dropped dramatically
Median performance IPO to year end 2015 = (26%)
But, these companies going public introduced the “need for scale” in the industry
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Need For Scale Drove Consolidation Wave in 2014
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There were 21 Ad Tech M&A deals of greater than $100M in value in 2014
($ in Millions)
Date Acquirer Size Revenue EBITDA
Implied Enterprise Value to LTM
Target
Sep. 2014 $2,300M 3.7x 11.2x
Jul. 2014 382 5.5x ND
Feb. 2014 408 6.5x ND
Mar. 2014 360 16.4x ND
May 2014 101 8.1x ND
Apr. 2014 205 2.1x ND
Aug. 2014 230 2.6x ND
Jun. 2014 350 6.6x 44.0x
May 2014 310 12.4x ND
Jul. 2014 240 4.8x ND
Sep. 2014 107 14.4x ND
Jul. 2014 222 2.2x ND
Jun. 2014 235 1.3x ND
Jun. 2014 150 5.8x ND
Mar. 2014 200 ND ND
Dec. 2014 1,100 9.2x ND
Nov. 2014 640 ND ND
Jul. 2014 175 4.4x ND
Aug. 2014 190 3.4x ND
May 2014 109 ND ND
Nov. 2014 100 ND ND
Source: CapIQ & Goldman Sachs Research
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Date Target Acquirer Sector Price LTM Rev. Multiple
Dec 2015 Ad Network $180M ND
July 2015 Mobile $300M(1) 1.1x
June 2015 Software $594M 2.9x
May 2015 Diversified $4,400M 1.6x
April 2015 Mobile $533M 3.6x
March 2015 Personalization $100M 4.2x(2)
March 2015 Analytics $100M ND
March 2015 DMP $195M 5.6x
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Only nine deals of $100m+ in value in 2015 amidst a difficult year for AdTech in the public markets
(1) Unofficially announced amount
(2) Net revenue multiple
2014 M&A Wave Much Greater than 2013 or 2015
Only four deals of $100m+ in value in 2013 as focus was on AdTech IPOs
Date Target Acquirer Sector Price LTM Rev. Multiple
Sep 2013 Mobile $350M 3.5x
Aug 2013 Video $405 4.1x
Aug 2013 Mobile $228M 3.2x
June 2013 Email Marketing $2,296M 7.2x
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Source: AGC Partners
So far, the industry consolidation centers around three areas: Mobile, Video and Data
The first round of the consolidation is 75%+ complete but new opportunities/business models are emerging
Video and Mobile are still very early – expect these two areas to be the hot areas for 2016
Also, cross channel attribution and real audience identification will also be key capabilities sought after in
2016
Key Consolidation Themes in Ad Tech
Mobile
Video
Data
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Key Potential Ad Tech Industry Trends for 2016 (a)
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1. Digital Ad Spending to Surpass TV Spend in 2017 – Implications?
Ad spend on video should be the big “winner”
Greater clarity on performance of marketing spend
Are marketers ready? – Significant investment in technology and people
2. Programmatic Continues to “Drive the Bus” – +50% of digital in 2016
Quality of inventory takes center stage over pricing
Fraud issues of 2015 get solved, or at least better
3. Mobile, Mobile Everywhere – Brands struggle to catch up to consumer behavior
Ad verification and viewability is more complicated on mobile
4. Scale Matters – Further separation of the “men from the boys”
Internet Titans’ share of the industry becomes even more dominant led by Facebook and Google
See the effect of a “Walled Garden” at scale (e.g. Facebook’s mobile ad inventory)
Only need 2-3 “winners” per category – layoffs will continue elsewhere, especially companies that are not
profitable yet
2015 layoffs were just “the tip of the iceberg” (e.g. Turn, Collective, Centro, Rocketfuel)
5. Brands continue to build up their in-house capabilities as they increasingly understand the
importance of their customer data to the success of their digital ad campaigns
Agency role/relationship will need to evolve
6. AdBlocking Meets “Main Street”
7. New Buyers Enter the M&A Game?
Source: (a) AGC Partners
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#1 – Digital Ad Spend to Surpass TV Spend
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According to eMarketer, digital ad spending will surpass TV spending in 2017
Digital is expected to represent 37% of total ad spending vs 36% for TV
By 2019, this chasm widens to 41% vs. 35% respectively
Mobile is expected to grow from 22% in 2016 to 29% in 2019
Print is the biggest “loser” dropping from 16% in 2015 to 12% in 2019
Source: eMarketer – Mobile to Account for More than Half of Digital Ad Spending in 2015
(a) Salesforce 2015 State of Marketing Cloud
Areas of Increase and Decrease in 2015 Budget (a)
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#1 – Digital Ad Spend to Surpass TV Spend – Video is Big “Winner”
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For the first time, U.S. adults spent more time on digital video than on social networks in 2015 and
an increasing amount of time relative to TV (1)
This was especially true of millennials
Popular new shows on places like Netflix and Amazon will help contribute to these trends
Source: (1) eMarketer April 2015
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According to an annual survey done by Brightroll, almost 50% of all ad agencies surveyed said they
included video as a component of their digital RFPs – this is up from only 25% of the time in 2011
Additionally, the same survey reported that 72% of the agencies surveyed thought online video
advertising was more effective than TV advertising
The same Brightroll survey revealed that agencies (and hence clients) are getting smarter and more
sophisticated vis a vis measurement of success
It’s not just about completed views anymore – conversion, brand lift and viewability also matter
Source: Brightroll 2015 Ad Agency Survey
Online video is more effective than TV
Online video is about the same as TV
Online video is less effective than TV
I don’t know
In your experience, how effective is online
video advertising when compared to the
following alternatives?
Completed views –
Conversion –
Brand lift –
Viewability –
CTR (Click-thru-rate) –
Inventory quality –
GRP/TRP (gross/targeted rating point) –
Validated impressions –
Sales impact –
20%
18%
17%
14%
10%
7%
6%
5%
4%
What is the most important success metric for your
digital video campaign?
#1 – Digital Ad Spend to Surpass TV Spend – Video is Big “Winner”
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#2 – Programmatic “Drives the AdTech Industry Bus”
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Programmatic ad spending has seen meteoric growth and
now represents over 50% of total digital ad spend
$15 billion in 2015 and expected to grow 19%
CAGR through 2020
Programmatic offers better efficiencies, more
transparency, and improved targeting/measurement vs.
traditional media buying
Within programmatic, mobile and video are the largest
growth segments
Source: Business Insider Intelligence
Programmatic Ad Revenue
Share of Digital Ad Rev.
Programmatic Growth Rates
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#2 – Key Trends in Programmatic for 2016
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QUALITY BECOMES KEY IN 2016
Not just about price anymore
Quality Ads / Quality Data / Quality Targeting
Improvement in ad viewability and transparency
More accurate attribution and measurement
Increased use of cross-device campaigns and increased use of programmatic mobile
Increased importance & use of first party data sources vs. 3rd party
Brands continue to invest in in-house trading desks
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#3 – Mobile, Mobile Everywhere – Brands Struggle to Catch Up to
Consumer Behavior
According to Comscore, mobile accounts for two out of every
three minutes spent consuming digital media in the U.S.
Mobile devices are the “go to” platform for consuming digital media,
especially with millennials
According to eMarketer, mobile ad spend is now over 50% of all
digital ad spend and it is expected to grow at a CAGR of +29%
through 2020
Mobile is expected to represent 70% of all digital ad spend by 2019
Display and search are the largest sectors within mobile today
and are expected to continue to drive the growth
Source: eMarketer – Mobile to Account for More than Half of Digital Ad Spending in 2015 dated Sept. 1, 2015
Comscore – April 2015
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Between 2014 and 2015, marketers saw a significant increase in the importance of social and mobile
marketing
According to a study done by Salesforce, 70% of all marketers see mobile as a critical enabler of
their products and services
However, in reality, the successful, impactful execution of mobile ad campaigns can be quite difficult
Small screen size
More difficult targeting & attribution
Cross channel verification and tracking still early
Source: (a) Salesforce 2015 State of Marketing
Mobile Marketing Impact on Business (a)
#3 – Mobile, Mobile Everywhere – Brands Struggle to Catch Up to
Consumer Behavior
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#4 – Scale Matters – Internet Titans Dominate the Industry
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According to the Q2 2015 quarterly PWC/IAB industry report, the
top 10 ad selling companies represented 72% of all digital ad
money
Although this % has remained relatively unchanged (i.e. 69% -
74%), we expect this to increase in the future as mobile ad
spend becomes more dominant
We also expect to see continued rivalry between Google (64%
share of search market) and Facebook (#1 in Display – 25%)(1)
with their mobile efforts being the key success driver
% share of total revenues (a)
Source: (1) Forbes.com – July 2015
(a) IAB/PwC Internet Ad Revenue Report, HY 2015
eMarketer – March 2015
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#5 – Brands Build Up In-House Capabilities
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Many people believe that there is a general trend for CMOs to build up more digital marketing capabilities
in-house rather than using agencies and/or technology partners
The CMO’s job is more complex and customer data is seen as a “core” asset to a marketer’s success
Data Analytics seems to be the biggest focus of current in-house capabilities
First party data is becoming more and more valuable relative to third party data
Actual behavior vs. look alike or spam
Consumers seem surprisingly more willing to share their data for the right incentives
Source: (a) Teradata: Enterprise Priorities in Digital Marketing, Sept 2014
(b) eMarketer-Trends for 2016: Six Predictions for What Will Happen
% of Companies Surveyed with These Capabilities In-House (a)
Reasons for Sharing Data with Companies
According to US Internet Users, May 2015 (b)
% of respondents
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#5 – Brands Build Up In-House Capabilities – CMO’s Job is
Broader/More Complex
The CMO’s job has become much more complex in this new “customer centric” marketing
environment. A good CMO needs to understand change management, data management, and
consumer experience design, not simply provide creative and media channel expertise. Key
challenges/issues include the ability to:
Provide a single, integrated view of the customer across channels across all of the
customer’s lifecycle
Manage multiple campaigns across multiple channels efficiently and effectively
Offer highly targeted personalized ad campaigns
Determine what capabilities to do in-house and what to use partners for and who the best
type of partner is
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#6 – AdBlocking Meets “Main Street” in 2016
Source: (a) Pagefair & Adobe: 2015 AdBlocking Report
AdBlocking is a huge, global issue that significantly impacts the user experience
Technical effects favor spending shift to “walled garden” or “logged in” environments
Estimated loss of 2015 revenue due to adblocking = $21.8 billion globally and $10.7 billion in the U.S.
Globally, the number of people using adblocking software increased by 41% YoY vs. 2014
16% of the U.S. population blocked ads in Q2 2015
Broad adoption? – Think online version of “Do Not Call”
But will increased adblocking help drive improved ad quality?
Global AdBlocking Growth (a)
Cost of Blocking Ads (a)
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#6 – AdBlocking Usage – Early Adopters are Tech Savvy Males
Source: Pagefair & Adobe: 2015 AdBlocking Report
Global Share of Ad Blocking
AdBlocking is still in its early adopter phase – used by 5% of internet users and 9% of impressions
Usage highest for Google Chrome (126m monthly users, 53% of all adblocking traffic) and
lowest in mobile (1.6% of all ad blocking traffic)
Not surprisingly, adblocking is more prevalent amongst sites that are attractive to tech savvy people
and young males
Gaming sites have the highest use of ad blocking
Many industry analysts expect adblocking usage to increase dramatically now that Apple has
introduced adblocking capabilities into its desktop and mobile operating system software
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#7 – New Buyers Enter the AdTech M&A Game?
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2016 may just be the year for new buyers in AdTech. Why?
1. Industry is maturing and the chasm between the “winners” and “losers” is widening
Hence buyers can better assess the value and risk of what they are buying
Buyers can also make “platform acquisitions” with more confidence
2. Mobile and video are key industry growth drivers and may attract new types of buyers
Telecom; cable and traditional media are good potential candidates
3. The value of first party data to an overall marketing stack offering is becoming more clear
Will the other big enterprise software guys follow the path set by Oracle (BlueKai; Datalogix)?
Is ecommerce data the “holy grail” of digital marketing and will we see M&A transactions
around that theme?
4. Cross device measurement and analytics is becoming increasingly important as
marketers look to create one consolidated view of their customers
Will ad agencies and other data management companies step up and make acquisitions
here?
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State of the Advertising Industry
Recent Trends and Transactions in the AdTech Industry
Public Companies and Select Recent AdTech M&A and Private
Placement Transactions
III
II
I
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Source: Pagefair & Adobe: 2015 AdBlocking Report, CapIQ
Private Placements Greater than $25m
2015 was a surprisingly solid year for financing in the AdTech industry
Nowadays, there’s a perception that VC/PE firms are leaving the AdTech industry behind, but in reality,
there were more $25m+ deals in 2015 than in 2013 or 2014 as per the chart below
Moreover, the deals in 2015 represented a broader spectrum of subsectors, including creative
optimization companies, SSPs and measurement and analytics companies
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Contact Information & Disclaimer
This document is intended to serve as information only, and to suggest that further analysis and consideration may be warranted. Unless otherwise indicated, AGC does not
believe that the information contained herein is sufficient to serve as the basis of an investment decision. There can be no assurance that these statements, estimates or
forecasts will be attained and actual results may be materially different. Only those representations or warranties which are made in a definitive purchase agreement will have
any legal effect. To learn more about the company/companies that is/are the subject of this commentary, contact one of persons named herein who can give you additional
information.
Linda Gridley
Partner, Co-Head of
Digital Media Group - New York
lgridley@agcpartners.com
212-400-9710
Gee Leung
Partner, Digital Media Group - San
Francisco
gleung@agcpartners.com
650-241-1490
Jon Guido
Partner, COO, Co-Head of
Digital Media Group - Boston
jon@agcpartners.com
617-261-4126
Markus Salolainen
Partner, Head of Europe,
Digital Media Group - London
msalolainen@agcpartners.com
+44 7776 193 861
