There must be some legs to the bull run in online advertising – that is the only conclusion that can be drawn from the recent spate of M&A activity in this sector.
The first thing was seeing the list of recent big acquisitions in one place for the first time post the Microsoft-aQuantive deal.
- Publicis acquired Digitas for $1.3bn (a 23% premium to the stock price)
- Yahoo! acquired Right Media for $680m
- Google acquired DoubleClick for $3.1bn
- WPP acquired 24/7 Real Media for $649m
- Microsoft acquired aQuantive for $6bn (an 86% premium to the stock price on Thursday and Microsoft’s biggest ever acquisition by quite some margin)
Wow. That is a lot of activity in just a couple of months. And all at healthy multiples.
There have been a couple of smaller deals too AOL acquired Adtech (a vendor of adserving technology) and ThirdScreenMedia (a mobile ad network) and Microsoft acquired ScreenTonic (another mobile ad network – European focused this time).
As the Sunday Times says:
Online advertising is already a big and fast-growing business, measured in tens of billions of dollars, but Microsoft et al are betting that we ain’t seen nothin’ yet.
All those TV ad dollars are still to come to the net after all. Or to put it another way, once TV is broadcast over the net the distinction will disappear – online advertising will literally be the whole market.
This is all true, without a doubt, but the interesting question to me is how much these acquisitions will help their acquirors take advantage this market shift/growth. With the exception of Yahoo’s acquisition of Right Media these deals are not about opening up new markets, but participating in large existing ones. The other four large deals were for adserving technology vendors and/or digital agencies – these markets are neither new, nor that fast growing when compared with say search or mobile.
These deals all have good logic and were for great companies – my point here is simply that the online ad market is still young and there will be many twists and turns to come. Microsoft, Yahoo! and Google (and certainly WPP and Publicis) will have to innovate hard if they want to capture those TV ad dollars when they start to come online. I don’t think that having fantastic adserving technology will give them much of a headstart.
This has to be fertile ground for entrepreneurs and VCs alike. Hopefully in a couple of years these guys will all have opened their cheque books again and I will be writing another post like this one!