What’s driving ad mergers and acquisitions in the year ahead?

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Last year saw a boom in mergers and acquisitions – an astonishing 139% increase in the US compared to 2020. Deal volumes broke records with $5.8 trillion in M&A activity in 2021, primarily driven by digital transformation, access to capital, a recovering global economy and labor shortages. This “supercharged” M&A environment will likely continue for the foreseeable future.

Perhaps unsurprisingly, technology and telecommunications deals accounted for almost 20% of M&A activity last year, including more than 2,000 media-related deals worth of $189.7 billion. Notable major deals include AppLovin acquiring MoPub, Microsoft acquiring both Xandr and Nuance, and Integral Ad Science buying connected TV advertising platform Publica, and other multi-billion dollar deals.

The changing media landscape is creating new revenue opportunities, as evidenced by last quarter earnings from Amazon to Walmart. Advertising is a major source of this revenue, and in some cases, like Meta, the source of challenges. These results, influenced by several converging factors, set the stage for unprecedented advertising mergers and acquisitions activity in 2022.

The first catalyst for anticipated media consolidation revolves around privacy regulations. Data is a valuable currency in advertising, allowing advertisers to transact efficiently against specific audiences. Today, consumers are increasingly aware of how their data is used, driving both regulations (such as GDPR in Europe and CCPA in California) and trade policy changes that offer consumers informed choices (Apple and Google’s privacy changes on mobile devices, for example).

Related: What 2021’s M&A deals tell us about the future of online advertising

Naturally, data regulations vary widely around the world, often creating barriers to operating in new markets. This immutable fact is a powerful incentive for mergers and acquisitions, as it allows an otherwise crippled organization to expand its geographic footprint by acquiring an established operation already suited to the region’s unique regulations. Additionally, the growing value of first-party data will also fuel transactions. That’s why we’re seeing retailers enter the advertising space at an unprecedented rate. Businesses with access to first-party data can drive value through advertising, as Amazon’s latest revenue breakdown of their ad revenue powerfully demonstrated.

Opportunities in this high-growth market also influence transactions. The remarkably rapid growth of digital advertising (now accounting for two-thirds of all advertising) is bringing new players into the space at an equally rapid rate. Last year, we saw Walmart, Instacart and Nordstrom branch out into advertising, which immediately generated significant new revenue streams. While some organizations have partnered with ad tech companies to fuel revenue expansion, others will look to mergers and acquisitions. Simply put, high-growth acquisitions are a proven means of revenue growth. Organizations with first-party data can monetize this critical asset through ad-tech acquisitions, as TransUnion demonstrated with its $3.1 billion acquisition of Neustar.

Changing consumer behavior, namely device fragmentation, will also continue to impact consolidation. The pandemic has clearly changed the way audiences consume content, with an increase in time spent on digital devices and the emergence of new streaming options. Today’s diverse access to information creates complexity for advertisers and publishers, as the desire to reach audiences across everything channels – TV, digital and mobile – makes it harder to manage technology strategies and solutions. The combination of business processes in support of omnichannel advertising will almost certainly drive further mergers and acquisitions in the media industry.

This catalyst is reinforced by growing expectations for advertising delivery across all channels, influenced both by advertisers’ needs and by the preference to build relationships with suppliers who can simplify the supply chain. In short, the ad tech supply chain is complex. Simply put, big brands need to acquire point solutions to maximize their digital supply chain footprint. Media companies that focus on a specific vertical (i.e. Connected TV/CTV) are more attractive acquisition targets for companies looking to enter the market, as evidenced by the recent acquisition of $430 million by AppLovin of the CTV software platform, Wurl. Small players with a single focus are ripe targets and will likely dominate acquisition deals in the coming year.

Related: After 7 M&As in 7 Years, I Thought I’d Seen It All. Then I did a remote M&A in the middle of a global pandemic.

Strategic acquisitions also provide a means to achieve scale, which is increasingly important in today’s market where advertisers consolidate on fewer, bigger and better supply partners. Implementing sophisticated quality control measures is an expensive undertaking, often requiring costs that small businesses cannot afford, such as money-back guarantees, especially in emerging ad formats. The growing trend towards optimizing the supply path, or simplifying the supply chain, is forcing customers to work with fewer partners delivering quality, control and efficiency. Scale is an important part of this offering.

More than 10 public ad tech companies are now valued at over $1 billion, making up the top tier of the industry. The desire and competitive advantages for more mature and scalable solutions for publishers and advertisers will continue to fuel media mergers and acquisitions in the future. Add to that the need for greater efficiency as technology vendors integrate and eliminate redundant costs, and you have an industry ripe for landscape-altering mergers and acquisitions.

As consumer behavior and the technology powering media revenues continue to evolve, consolidation will also reflect future supply chain needs for the industry. Clear winners will naturally emerge, and the inevitable consolidation will permanently reshape and redefine the media industry.

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