Buoyancy and dynamism define the adtech market of 2021
Digital advertising is showing incredible resilience at this time of economic uncertainty, with revenues increasing over 12% last year according to the IAB Internet Advertising Revenue Report. This is positive news for the adtech market, which is itself experiencing a period of significant growth and evolution.
The pandemic is actually driving investment in adtech, with its social and economic impacts pushing advertisers to adopt technology to make inventive and efficient use of budgets, as well as to respond rapidly to changing needs and behaviours. Alongside the COVID-19 context, there are major changes taking place in the adtech landscape. There is a focus on quality, measurability and transparency, as well as a quest for new identity solutions to meet the challenge of third-party cookie deprecation and reduced availability of mobile IDs following the latest Apple update.
As a result, adtech solutions are an attractive proposition, both for larger companies looking to expand their digital offerings, and for investors seeking valuable opportunities. Whether they’re growing their businesses through funding rounds, or going public through initial public offerings (IPOs), adtech providers are making the most of the market’s dynamism.
Industry consolidation is picking up pace
Mergers and acquisitions activity is gathering steam in 2021. In addition to resolving the identity issue, this is driven by a general push towards a more streamlined, less fragmented industry. There is high demand for global omnichannel platform players that can deliver transparency and efficiency across multiple channels and provide a viable alternative to the tech giants.
February was a particularly busy month with notable events including the acquisition of video SSP SpotX by Magnite, which was itself formed last year when Rubicon Project merged with Telaria. District M and Sharethrough also agreed a merger, while LiveRamp acquired encrypted-data startup DataFleets. More recently, Extreme Reach announced its intention to acquire competitor Adstream.
SPAC provides an alternative to traditional IPOs
Adtech companies can sometimes struggle to break into the public markets using the traditional IPO approach. The long and complex process, which involves a great deal of scrutiny, doesn’t necessarily align with the rapidly evolving ecosystem.
Nevertheless, a number of adtech businesses are still taking the IPO route. Supply-side platform (SSP) Pubmatic launched its IPO in December, with share prices rising more than 65%. Prices fell temporarily in March when Google announced it wouldn’t support third-party cookie alternatives, but then rebounded in April as the platform announced strong performance for its OpenWrap product which tracks digital identities without cookies. Viant, a demand-side platform (DSP), also launched its IPO in February, and DoubleVerify, a media measurement and analytics platform, went public in April. Outbrain and Zeta Global are the latest companies to join the IPO queue.
For those that don’t want to go down the traditional IPO route, a popular alternative is emerging in the form of a Special Purpose Acquisition Company (SPAC). These companies are set up solely to raise money through an IPO, which is then used to acquire existing businesses. Set up by investors with expertise in a particular industry or sector, SPACs usually have at least one acquisition target in mind – but this isn’t disclosed prior to the IPO to avoid prolonging the process. Because investors don’t know what companies they will be financing at the time of the IPO, SPACs are often referred to as ‘blank cheque companies’. They have two years after the IPO in which to buy a business and, after an acquisition, the SPAC is usually listed on one of the major stock exchanges.
SPACs deliver a couple of key advantages for adtech providers. First, they speed up the IPO process, often reducing it from years to just months. Second the business being purchased has more scope to negotiate terms and avoid the price uncertainty of traditional IPOs. Content recommendation engine Taboola is one leading adtech company taking the SPAC option, with plans to merge with ION Acquisition Corp. 1, after which it will be listed on the New York Stock Exchange with a valuation of $2.6 billion. Mobile monetisation software IronSource is also going public this way, and will merge with Thoma Bravo Advantage.
Funding remains strong across the adtech market
Before adtech companies can consider an IPO, most go through several rounds of funding, which can be thought of as stepping stones to grow the business through external investment. With adtech currently seen as a strong investment, there are plenty of funding options available.
At the outset, adtech startups usually look for seed funding which helps finance their first steps, including putting together a founding team, developing a product and undertaking market research. This early investment is often provided by Angel Investors who finance ventures without a proven track record.
Once a company has an established user base or consistent revenue figures it can apply for series A funding, which often comes from venture capital firms specialising in early stage investing. These include VC firm Breega, which recently invested in adtech startups BeOp and Didomi.
Series B funding takes businesses beyond the development stage, helping them scale by financing business development, sales, advertising, technology, and recruitment. By the time companies apply for series C funding they are already successful and are looking to develop new products, acquire other companies or expand into new markets. For instance, intelligent creative platform Vidmob recently raised $50 million in series C funding to finance global expansion, ecommerce initiatives and ongoing tech investment. While many companies stop at series C, others do continue through series D and E funding rounds, especially if they are looking for a financial push prior to an IPO.
Adtech is always a vibrant and exciting sector to operate in, with the next big development or news story just around the corner. And the current buoyancy in the market is only expected to increase over the coming months as the economic situation stabilises and ad budgets begin to recover. Next month we’ll be writing about how PR activities can help adtech providers prepare their businesses for funding rounds and IPOs, or make them more attractive to potential buyers in this dynamic environment.