From ads in video games, retail media, and cookieless tracking — experts predict these 6 surging areas will drive ad industry M&A in 2023
Author: Lara O’Reilly Source: Business Insider
After a frenzied year of dealmaking and IPOs in 2021, advertising industry M&A was more subdued this year.
Venture funding in the advertising space has also cooled, and the share prices of many public adtech and martech firms dropped precipitously.
While the first three quarters of this year saw roughly the same number of deals as the same period in 2021, the aggregate value of those transactions dipped, according to investment bank Luma partners.
"Sellers have been reluctant to adjust valuation expectations downwards," said Alex DeGroote, media and tech analyst at the research firm Arden Partners. "But now they have no choice."
But despite economic headwinds, experts say the explosive growth in areas such as streaming television and retail media, plus the push for more privacy-focused ad tools could drive a number of strategic deals next year. Added to that, private equity companies — which accounted for almost half of the acquisitions in the sector in the first three quarters of 2022, according to M&A advisory firm Ciesco — are sitting on an estimated $1 trillion-plus in yet-to-be-invested cash reserves. At least some of that capital will be deployed in the advertising sector, experts said.
Insider spoke to more than a dozen experts — from consultants, to investors, founders, analysts, and corporate development executives — to identify the industry's predictions for the biggest advertising M&A trends in 2023.
1. Numerous companies launched ad businesses in 2022, and some will acquire to differentiate themselves
From Netflix to Lyft to Marriott — there was no shortage of companies launching ad businesses for the first time in 2022.
But these new ad businesses will need to add value to keep customers coming back, experts said. They might provide that value by picking up technologies in areas like measurement or AI, or even acquiring entire teams of specialists. "The math for an acqui-hire makes sense, especially if a team that already knows how to work with each other effectively can be plugged in immediately," wrote consultancy firm Sparrow Advisers in a December blog post.
2. Companies in hot areas like performance marketing, retail media and CTV will buy others to build out their offerings
Performance marketing, retail media, and the growth of connected TV advertising have been among the hottest trends for advertising companies and agencies in recent years. Now the experts in these spaces want to broaden their capabilities, experts said.
Companies looking to quickly scale up their retail media business could look to buy firms with big client bases or large troves of data. Analysts at Arete Research predicted in November that adtech company Criteo could be a target for acquirers like Shopify, Pinterest, or The Trade Desk.
Performance marketing companies already have strong data and tech chops, but Tristan Rice, head of SI Partners' European M&A practice, thinks these companies will want to acquire their way into some creative heft, much like how adtech company MNTN acquired actor Ryan Reynolds' marketing agency Maximum Effort.
"You need grown-up creative thinking to layer on the data and tech wizardry," Rice said. "That was out of favor for a while as everyone focused on the bottom end of the marketing funnel."
Also look out for mergers and acquisitions centered around connected TV, particularly among companies that can improve targeting and measurement, said Jorge Poyatos, cofounder of the adtech firm Seedtag.
3. "Traditional" adtech will further consolidate
Experts predict major consolidation in the adtech sector next year, as some publicly-traded companies underperform, and private companies find their cash reserves dwindling.
"Two things are going to happen in acquisitions: fire sales and mergers," said Chad Engelgau, Global CEO of Acxiom. "As investors require something for their money besides growth, many companies are on the ropes."
Kunal Nagpal, chief business officer at adtech company InMobi, predicts there will be "at least three to five deals" among companies that provide technology to publishers next year to create bigger and more financially robust players. Similarly, he said there would likely be mergers at the demand-side platform end, as those companies look to build scale.
4. Influencer marketing specialists will snap up tech companies
Influencer marketing represents a growing proportion of marketers' budgets. Insider Intelligence forecasts that companies will spend $6.2 billion on influencer marketing in the US next year, up from $5 billion in 2022.
M&A deals in the creator economy space ramped up in 2022, and there will likely be more in 2023.
As influencer marketing matures, there will be demand for data-driven companies that can prove return on ad spend, and for companies that help marketers determine which influencers to work with, said MiQ Global President of Corporate Development Paul Silver.
5. Ads in gaming gain steam
In-game advertising once focused around free-to-play mobile games, but that's changing as brand integrations come to consoles, massive multiplayer online games, and metaverse-type environments.
Gaming will see a lot of M&A in 2023, said the media and tech analyst Alex DeGroote, because it's a sector where where companies benefit from scale — both in terms of users and their content libraries.
Both Microsoft's Xbox and Sony's Playstation are building their ad divisions, while adtech giant The Trade Desk has built a team for video game ads. Experts said potential acquisitions in the space could include ad serving tech that makes it easier for brands to deploy their ads within games and firms that make it easy to measure the effectiveness of those ads.
"Gaming is a really big market for brands and agencies to tackle: 82% of global consumers are gamers, which means it's also as big as the audience who watch live TV," said Carrie Seifer, chief customer officer at research platform GWI.
6. Advertising agency holding companies will go shopping for cookieless adtech
The big advertising agency holding companies have shown remarkable resilience in 2022. But they'll need technology to continue adding value beyond media buying, said Albert Nieto, cofounder of the adtech company Seedtag.
Of particular interest will be companies that are building technology that doesn't rely on third-party cookies, as Google plans to phase them out from its popular Chrome browser in 2024. Meanwhile, the industry still needs new privacy-focused approaches to target and measure ads, especially across different online platforms or offline.
"I would not be surprised if there is a large play by one or more agency holding groups to buy out an existing universal ID player that has scale on the sell side to power their identity graph," said Kunal Nagpal, chief business officer at adtech company InMobi.