Digital Marketing, rocketing towards a $1 Trillion Industry
The Digital Marketing space is vibrant as ever. 2021 saw a fast recovery (+30% over last year according to CIESCO) from a dip in 2020 that broke an impressive 5-year growth streak. LUMA.A, an index produced by LUMA investment banking, which tracks publicly traded Adtech companies, already represents close to $200bn in combined market capitalization. Over the past five years (since Jan ’17), LUMA.A (Ad Tech index) is up 972%, and LUMA.M (Martech index) is up 395% over the same period. TripleLift, one of the largest advertising technology platforms in the world, at the intersection of creative and media, reported growing at 76% over the last 5 years. It handled over 40 trillion ad transactions across desktop, mobile and connected television. Similarly, Media and Game Invest (integrator of media content and games) also showed an amazing 70% CAGR since 2018, combining organic growth with a staggering number of 30 acquisitions.
A recent McKinsey report stated that the industry jumped five years forward in consumer and business digital adoption in a matter of weeks due to the shift in demand for digital experience solutions caused by the pandemic. Digital Marketing has rapidly become so relevant that one in every two euros spent today in marketing is already dedicated to digital marketing and keeps growing as people spend more time surrounded by screens and mobile devices.
The USA and the UK stand clearly out at the most prominent regional markets, representing more than 50% of overall activity. Other countries showing significant deal activity in Digital Marketing are Germany, France, Canada, Sweden, and Italy.
Total deal-making in Adtech and Martech was up +82% year-over-year (2021 vs. 2020, again, according to LUMA investment banking). This trend is expected to continue in 2022 as tech, media, communication, management consulting. Financial players seek to adapt to changes in consumer behavior, partially derived from the covid-19 pandemic, popularity of streaming, surge in eCommerce, and increase in software usage. Expected expansion in Digital Advertising is projected to become a trillion-dollar industry soon, with Google already worth $1.8Tn, and originating over 70% of its revenue from advertising. Likewise, Facebook, worth $870Bn, derives almost all of its revenue from advertising.
When questioned on key motives driving this acquisition spree, dealmakers emphasize the passion for making customers successful through innovation and digitization and the creation of environments in which trust, authenticity, and collaboration can thrive. The next generation of programmatic advertising needs to invent new ad formats and build two-sided marketplaces that allow publishers to monetize content around the world.
Consolidation in the digital advertising ecosystem also clarifies the technology partner marketplace for marketers and publishers to those companies with more curational and integrated approaches. High growth sub-sectors such as CTV, Mobile App, Data Analytics, Identity, and e-Commerce are some of the themes attracting the most attention from acquirers and financial sponsors.
As in other rapidly growing industries, private equity funds are capitalizing large portions of the investments in the sector, accounting for close to 50% of deal value. Clearlake Capital, Vista Equity Partners, or Carlyle have been some of the most active financial sponsors in the space. When looking for an investment partner, Digital Marketing platforms place a premium on a deep understanding of the Adtech/Martech industry and a willingness to lean into developing portfolios of innovative, high-growth products.
Following, we review some of the most relevant transactions closed over the last 24 months that we have found particularly compelling.
In March 2021, Avedon Capital acquired German digital agency (digital marketing, e-commerce, big data, and AI) Netzkern, and subsequently merged it with Dutch digital services specialist Macaw, creating the largest Sitecore player in Europe.
Five relevant transactions stood out in Messaging: Twilio bought ZipWhip for $850 million in October 2020 and one month later announced the acquisition of the leading customer data platform Segment for $3.2Bn. MessageBird, a communications platform, received funding of $800M, which allowed it to apply $600M to buy email marketing platform SparkPost. In November 2020, Facebook took their biggest step to date to expand their services for businesses as they aim to improve customer service. The social media giant completed the acquisition of CRM start-up Kustomer.
According to the Wall Street Journal, sources have said the deal was agreed at $1 billion. The start-up specializes in customer service platforms and chatbots and was said to be part of an effort by Facebook to help companies use its platforms to do business as customers are increasingly communicating with companies by messaging rather than calling. Facebook said more than 175 million people reach out every day to businesses using its WhatsApp messaging service. Towards the end of 2020, we saw one of the largest Martech acquisitions. Salesforce acquired workplace messaging app, Slack for $27.7 billion, marking Salesforce’s biggest acquisition in its 21-year history.
In March 2021, TripleLift, one of the largest AdTech platforms in the world, received a majority investment by Vista Equity Partners, valuing the company at $1.4Bn. Vista is a leading global investment firm focused on enterprise software, data and technology-enabled businesses. TripleLift has risen to prominence as the leader in Native programmatic advertising and is now commercializing breakthrough products in Connected TV.
In May 2021, Klaviyo, a customer data and marketing automation platform, raised $320M, led by Sands Capital, valuing the company at $9.15Bn. Its hybrid customer-data and marketing-platform model allows companies to grow by fostering direct relationships with customers.
Sitecore, funded by EQT, raised $1.2B one of the largest-ever capital investment in the martech space, to fuel product innovation, double go-to-market presence, expand geographic footprint and enhance global brand.
In early October 2020, SAP, the German business software colossus, acquired Emarsys, the omnichannel customer engagement platform. This acquisition follows SAP’s 2018 acquisition of Qualtrics, customer experience specialist. Emarsys provides SAP with valuable customer personalisation technology which will allow SAP to deliver more meaningful online experiences.
Quick glance at public Digital Marketing Valuations
We see valuations of Digital Marketing companies all over the place. Larger market cap players (multi-billion euros) such as New York based Doubleverify, a software platform for digital media measurement and analytics, Palo Alto founded AppLovin, manager of a software-based platform for mobile app developers to enhance the marketing and monetization of their apps worldwide, Tel-aviv based Ironsource, a business platform for app developers and telecom operator or Los Angeles located Magnite, operator of an independent sell-side advertising platform, all show enterprise value to revenues multiples larger than 5x, reaching as high as 12x in the case of Doubleverify. We see multiples descending rapidly to one times revenues and lower for smaller competitors, such as New York’s Taboola.com, operator of an artificial intelligence-based algorithmic engine platform or Washington’s IBEX limited, a technology-enabler with customer lifecycle experience solutions.
A clearly hot segment that is seeing especially robust valuations is CTV (Connected TV), accelerated through the consumer behavior shift from the pandemic. Large Adtech players with a CTV component are now worth billions. The surge of CTV was no surprise to Madison, but Wall Street has been slow to acknowledge it and catch up. Magnite, after the Spotx deal, has become one the largest independent CTV and video advertising platforms.
In summary, we see a thriving Digital Marketing ecosystem. Players in the industry with exciting business plans can profit from an excellent market dynamic. For large and medium size players, public market investors as well as private funds are eagerly seeking platforms to deploy their dry powder. For companies wanting to join global platforms, there is a myriad of active strategic acquirors pursuing M&A opportunities. Venture funds are also heavily investing in the sector, searching for the next unicorn. If you find yourself among any of these groups, consider talking to a seasoned investment banking team with experience in the industry.
At CDI Global, a cross-border M&A advisory firm specialized in SME transactions, we have been actively participating in the generation of Digital Marketing deals. Several of our operating countries have closed transactions in the space over the last few years: Mexico (Headways Media sale to Valtech), Switzerland (eBusiness Institute sale to Lingaro Group), Brazil (DTM sale to Plusoft), France (Akoa Digital Experiences merger with Aristote) or Vietnam (several funding rounds for Intrepid). CDI Global is currently working with several digital agencies wanting to have their business plans reviewed and valued, with the objective to decide on the best strategic alternative (funding, merger, IPO, sale or acquisitions). CDI Global offers SMEs the possibility to access a network of M&A specialists active in 50 offices across more than 30 countries. Through this network, we can access locally investors in the key Digital Marketing locations, be it the US, UK, Canada or Germany. CDI also offers larger players the possibility to execute multi-country mandates, allowing the parallel search of targets in a number of different regions.
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By Carmelo de las Morenas, CDI Global Member
