Ad technology companies are hot, with some selling for as much as eight times what they earn before taxes. Nevertheless, a new survey finds that most ad agencies and media owners aren’t looking to buy them.
Just 27 percent of the agencies and media owners polled by AdMedia Partners in its annual survey on mergers and acquisitions expressed interest in ad tech firms.
In contrast, 61 percent of those polled were interested in analytics firms, making them the top acquisition target, followed by social marketing shops, digital agencies and mobile marketing firms. Ad tech companies are way down on that list—at No. 11—despite commanding the same prices as the players in analytics (eight times earnings).
So, why are these respondents so cool to idea of doing ad tech deals? Well, many tech companies represent discreet functions rather than soup-to-nuts businesses and therefore have limited appeal, explained Seth Alpert, a managing director at AdMedia Partners, an M&A firm in New York.
In other words, a niche company may round out the tech offering at a behemoth like Google but add little value to say, an ad agency whose tech capabilities are thin.
“There is a broad sentiment that I’ve come across ... which is that ad tech is over-invested,” Alpert told Adweek. “There are too many ad tech companies, a lot of them are point solutions [and] they need to be part of something bigger. So, I think that’s one factor here that leaves some buyers cautious.”
Some agencies and media owners may also be skeptical about the staying power of ad tech players, given the ever-evolving nature of the space. In short, today’s hot property may be tomorrow’s Betamax.
“They should be scared to death of owning an ad tech company because A, they don’t really understand ad tech and B, they don’t know what they don’t know,” Alpert said.
Furthermore, some shops are content to partner with techies rather than buy them. Mindshare, for instance, uses real-time branded video producer Wochit, while Young & Rubicam provides office space and client access to the likes of Unconventional Partners and Interlude.
Of course, the partnership route is more cost effective, even if it’s nonexclusive and reduces agencies to middle men or general contractors, as some glumly predict that they will become in the future.
That said, it’s certainly better to be a teammate on the field than just a bystander on the sidelines. Besides, added Alpert, “It’s not necessarily in the interest of an agency to own a tech company because the [research and development] that goes into remaining competitive is very expensive.” So, why buy the cow when you can get the milk for free?