AdTech Industry Snapshot - Arbor...

AdTech Industry Snapshot Arbor Advisors LLC

Arbor Advisors provides M&A and capital

raising advisory services to high-growth

technology companies

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The Arbor Advisors Difference

Aligned Interests Focus exclusively on advising

entrepreneurs, never investors or buyers

Operational Experience Experience building companies as

entrepreneurs

Negotiation Framework Optimize results using the Harvard

Negotiation Project framework

We are experts in Negotiation

Harvard

Negotiation

Project

Stanford

School of

Engineering

Market

Market Overview

Digital Advertisement Scheme

Capitalization and Growth

Purchases Allocation in 2017

Digitalization Across Industries

Market Map

Forces Shaping AdTech

Deal Activity

Summary

Strategic Investors

Select Strategic Acquirers

Select AdTech Active Strategic Investors

Financial Sponsors

Summary of Select PE Investors

Valuation

Key Public Comparables

Operational & Valuation Metrics

Recent AdTech Software Transactions

How Growth Affects Valuation

Market Timing

Contents

3 3

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3 EASY STEPS Your Subtitle Here

Advertising Technology Market Overview

Digital Advertisement Scheme

ADVERTISERS PUBLISHERS

Technology

Media

Marketing

Digital

Content

MarTech

AdTech

Digital

Content Content sites,

MCNs, game

publishers,

aggregators

AdTech Display, search,

video, mobile,

social, content

marketing/native,

connected TV

MarTech Data, analytics

and predictions,

sales automation,

email, commerce

technology,

shopper

marketing,

payments

Source: WalkerSands Communications, G2Crowd

Ad

Buying

Team

Ad

Operations

Team

Direct

Deals

Ad Exchanges

(RTB)

DEMAND

SIDE

PLATFORMS

AD

CAMPAIGN

MANAGEMENT

SELL

SIDE

PLATFORMS

PUBLISHER

AD

MANAGEMENT

Ad

Networks

40.4%

37.1%

28.8%

24.2%

23.0%

17.1%

Global Digital

Advertising spending

Capitalization and Growth

6 6

Social media advertising expenditure as

share of digital advertising spending

worldwide in 2016 - 2017 by region

69,672

84,480

97,210

109,364

122,878

137,305

14,264 16,569 17,657 19,045 20,387 21,674

69,373

78,228

96,090 96,315

104,030

111,226

2015 2016 2017 2018* 2019* 2020*

Display

Classified

Search

Internet advertising spend

worldwide 2015 – 2020, by

type (in million U.S. dollars)

Source: Statista, markettechseries

$211 B

43.6%

38.5%

29.7%

24.1%

23.0%

17.6% Western Europe

North America

Asia Pacific

Central and Eastern Europe

Latin America

Middle East and Asia

2016

2017

Purchases Allocation in 2017

Source: Statista, brightroll

7 7

37%

29%

39%

29% 29%

19%

15% 16%

32%

28% 27%

24%

21%

15% 15%

12%

Socialmedia

marketing

AdTech E-mailmarketing

Analytics Contentmarketing

Searchmarketing

Mobilemarketing

Datamarketing

Purchased in the past 3 years

Purchased in 2017

51% 24%

12%

7% 6% Mobile

Search

Banner

Digital video

Other

In U.S.

Mobile Leading platform that allows for richer

data capitalization, resulting in better

ad targeting

Search/Social Drives close to 35%

site visits, the most of all channels

Display/Banner Usually yields less favorable results

than native ads

Digital Video Increasingly overtakes TV ad budget

due to high personalization and

engagement

Other Connected TV and brand surveys

ICT

Media

Professional services

Finance and insurance

Advanced manufacturing

Oil & Gas

Utilities

Basic goods manufacturing

Mining

Real Estate

Transportation & Warehousing

Education

Healthcare

Hospitality

Construction

Agriculture and hunting

Overall

digitalization

Digital

spending

Business

processes

Digital

spending on

workers

Digitization

of work

8

>

The industry’s maturity brings a new era in which new forces will come into play

Source: McKinsey

8

Digitalization Across Industries

Market Map

9

Mobile

Display & Programmatic

Content Advertisement

Select influencers across the AdTech landscape

9

Search

Source: Pitchbook, g2crowd

Video Social Ads

Forces Shaping AdTech

USA and EU regulations diverge

Google and Facebook leadership

Analytics vendors fight against

duopoly

Emerging need for approved sellers

Most popular and influential form of

content

Regulations Starting in 2018 GDPR goes into effect in Europe, widening the gap between the two markets’ policies

Oligopoly Marketers push for more accountability due to inaccuracies and recent moral

issues

Third-party Brings more transparency

across auction inventory and

better ROI

Ad-Fraud Fake ad sellers

collected $16.4B in 2017 for services

they never provided

Video Ad Live video and

personalized video will lead the trend

for both professional and

social sites

AdTech continues to move towards more personalized, interactive and high-quality content to capture the users’ attention. Video remains the most efficient means to engage audiences. Data protection regulations

are beginning to replace audience targeting with contextual targeting. Advertisers are frequently threatening to move to alternate parties or cut the spending on leading platforms, such as Google and Facebook,

because of their reporting errors and controversial content.

Source: martechseries, Forbes

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Deal Activity

Summary

12 12

Select Players

Private Equity Strategic Acquirers

Consumer attention spans are shortening. Advertisers are demanding more visibility into who sees their ads and whether their spend is

attracting customers. There is a clear shift towards native and personalized content, which is often distributed through search engines

and social media. Personalizing ads requires more data, and as a result data ownership is increasingly valuable in the market. Although

the powerhouses, Google and Facebook, enjoy their omnipresence and are highly acquisitive, niche solution providers are becoming

formidable competition. Having realized the tailwinds in the industry, we predict both strategic acquirers and PE investors will seek to

bolster their portfolios and further integrate digital advertisement channels. Most notably, Adobe acquired TubeMogul, a video demand-

side platform, for a striking $611.3M in late 2016. Currently, platforms that utilize the interactive and engaging elements of video content

are highly attractive in today’s market, signaling the potential for these platforms to attract strong valuations.

Deal Count by Category Deals by Enterprise Value / Revenue Multiple

Source: PitchBook, Tech Crunch, CBInsights, Quartz

Title quote from Maersk

16%

19%

30%

2%

6%

26% Accelerator/Incubator

Angel/Seed

Venture Capital

Growth/Expansion

Buyout/LBO

M&A

47%

26%

16%

11%

0.0x-3.0x 3.0x-6.0x 6.0x-9.0x 9.0x+

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M&A Activity

Strategic Investors

Select Strategic Acquirers

14 14

Ad Agencies

Source: G2crowd, Capterra

Social Media

Internet Portals

Commerce

Media/ Telecom

Ad/Marketing Tech

Video Platforms

CRM

Select AdTech Active Strategic Investors

2015 2014 and earlier 2016 2017 and later

Source: PitchBook, Crunchbase

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M&A Activity

Financial Sponsors

AUM: $12,000M

Check Size: $20M-$200M

Dry Powder: $4,490M

AUM: $30,000M

Check Size: $20M - $700M

Dry Powder: $7,730M

AUM: $3,300M


Dry Powder: $1,410M

AUM: $3,170M


Dry Powder: $557M

AUM: $21,000M


Dry Powder: $M

Summary of Select PE Investors

Company Stats Relevant Investments

During the period 2014 – 2018

17 17

Data as of 3/01/2018

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Valuation Advertising Tech

Key Public Comparables

19

Source: PitchBook, Capital IQ

19

Dis

pla

y &

Pro

gra

mm

ati

c

Vid

eo

Ad

ve

rtis

ing

S

ea

rch

& S

oc

ial

EV/2017 Rev Company

1.5x

0.1x 14.2x

4.4x

0.2x 10.4x

Median Min Max

Legend

1.6x

0.8x 45.7x

0.00x

0.20x

0.40x

0.60x

0.80x

1.00x

1.00x

2.00x

3.00x

4.00x

5.00x

TEV/NTM Rev

5.00x

5.50x

6.00x

6.50x

7.00x

Operational & Valuation Metrics


($M) Trading Metrics Revenue EV / Revenue

Company Name Equity Market Cap Cash EV 2017 2017 2017

Display & Programmatic

Criteo $1,717.8 $358.0 $1,428.4 $2,296.7 0.6x

Matomy Media Group 97.4 20.8 128.3 293.2 0.4x

Albert Technologies 21.4 11.1 24.6 1.7 14.2x

The Trade Desk 1,878.3 132.8 2,192.1 308.2 7.1x

Social Reality 52.7 0.2 40.9 28.4 1.4x

iClick Interactive Asia Group 466.6 24.1 488.3 110.9 4.4x

AcuityAds Holdings 46.4 1.3 37.1 46.6 0.8x

Rakuten 12,398.8 7,786.8 14,447.0 8,385.3 1.7x

Marchex 141.1 104.4 10.6 90.3 0.1x

Taptica International 392.1 27.0 342.6 210.9 1.6x

Median $266.6 $25.5 $235.5 $160.9 1.5x

Search & Social

Marin Software $61.9 $29.4 $14.0 $75.0 0.2x

Inuvo 23.1 2.9 29.4 79.6 0.4x

Facebook 512,759.0 38,289.0 423,263.4 40,653.0 10.4x

Yelp 3,478.1 558.2 2,694.7 846.8 3.2x

Alphabet 729,458.2 100,143.0 634,696.3 110,855.0 5.7x

Baidu 81,323.6 19,477.7 72,858.6 13,034.1 5.6x

Median $42,400.8 $10,017.9 $37,776.7 $6,940.5 4.4x

Video Software

RhythmOne $195.3 $39.3 $153.6 $196.8 0.8x

Telaria 206.4 77.2 106.3 43.8 2.4x

YuMe 167.0 41.3 - 159.9 NA

Mirriad Advertising 81.9 12.8 54.6 1.2 45.7x

Median $181.2 $40.3 $80.4 $101.8 1.6x

Recent AdTech Software Transactions

1.3x 13.3x

3.8x

Median Revenue Multiple

Median Min Max

Legend


($M)

Date Announced Target Name Aquiror Name Target Enterprise

Value Target LTM Revenue

Target LTM Revenue

Multiple

9/1/2017 140 Proof AcuityAds (TSXV: AT) $23.0 $11.3 2.0x

8/1/2017 DoubleVerify Providence Equity Partners 300.0 70.0 4.3x

6/23/2017 Teads Altice (AMS: ATC) 319.8 200.0 1.6x

3/2/2017 Viant Time (NYSE: TIME) 155.0 100.0 1.6x

12/19/2016 TubeMogul Adobe Systems (NASDAQ: ADBE) 611.3 212.0 2.9x

5/10/2016 Livefyre Adobe Systems (Nasdaq:ADBE) 45.0 11.8 3.8x

4/26/2016 Tapad Telenor Group (OTCMKTS: TELNY) 378.9 100.0 3.8x

1/6/2016 AddThis Oracle (NYS: ORCL) 175.0 19.9 8.8x

12/24/2015 HeyZap RNTS Media (FRA: RNM) 45.0 20.0 2.3x

10/27/2015 PureCars Raycom Media 125.0 26.5 4.7x

10/8/2015 Kixer Nexstar Broadcasting Group (NASDAQ: NXST) 15.5 6.8 2.3x

9/16/2015 Unruly News Corp (NASDAQ: NWSA) 174.9 22.2 7.9x

9/10/2015 Supersonic IronSource 150.0 75.0 2.0x

7/22/2015 Midroll Media The E.W. Scripps (NYSE: SSP) 60.0 7.9 7.6x

6/30/2015 Dailymotion Vivendi (PAR: VIV) 304.2 69.5 4.4x

3/23/2015 Viralheat Cision Group 40.0 3.0 13.3x

2/25/2015 Smart AdServer Cathay Capital Private Equity 42.3 27.8 1.5x

2/2/2015 Yashi Nexstar Broadcasting Group (NASDAQ: NXST) 33.0 25.3 1.3x

1/23/2015 Datalogix Oracle (NYS: ORCL) 1200.0 125.0 9.6x

22

ASSUMPTIONS

Preliminary analysis based on SaaS industry multiples

Public company comparables provide a range of

enterprise value (EV) multiples

– Range indicates 25th to 75th percentile value

How Growth Affects Valuation

Mean Growth Interval Valuation Interval (EV / Revenue) Median

> 3

5%

OUR THOUGHTS

Any analysis is only as accurate as the forecasts it relies on. Errors in accounting for key ingredients of corporate

value – such as the company’s growth rate - can lead to mistakes in valuation. We strongly believe that any

strategic advantage that translates into superior growth rates will make a company trade at higher multiples.

However, in the technology middle market, where valuations are highly subjective and acquirers use a set of

different valuation tools, we identify having and advisor with the right negotiation experience that fights for the

right exit multiple as a key component of the outcome.

25

% -

35

%

10

% -

25

%

>1

0%

3.0x

4.1x

5.4x

7.6x

3.4x

6.9x

9.7x

10.0x

1.0x 3.0x 5.0x 7.0x 9.0x 11.0x

0

50

100

150

200

250

300

0

1

2

3

4

5

6

7

8

9

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Ma

rke

t Cap

italiz

atio

n ($

B) C

as

h o

n B

ala

nc

e S

he

et

($B

)

Growth in Public Software Company Cash on Balance Sheet and Market Capitalization Indicates Purchasing Power

Cash on Balance Sheet

Market Capitalization

Major SaaS companies undergoing take-

private transactions leave PE giants poised to

make add-on acquisitions Despite a ~35% percent pull back in year-over-year startup acquisitions due to

uncertainty surrounding tax reform and repatriation, analysts are expecting a highly

acquisitive market environment in 2018. Public companies are showing a particularly

strong position as cash on balance sheets has grown 20x over the past ten years to

approximately $8.5 billion, and the market capitalization of those companies has

grown 28x over the same time period. This combined with the current availability of

debt financing leaves companies with an unprecedented level of purchasing power.

Furthermore, there are record amounts of dry powder in private equity. It is therefore

probable that the coming period will see both increased deal activity and higher

valuations.

Indicators Signaling Continuation of Highly Acquisitive Period for SaaS

Market Timing

23

Source: Tomasz Tunguz

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The opinions, ideas, statements, and interpretations in this report do not offer warranties, make representations, assurances, or undertakings of any kind, express or implied. User discretion regarding the accuracy, completeness and reliability is recommended. Data provided is based on several external sources Arbor Advisors, LLC deems to be reliable. However, any person or entity reviewing this report should conduct its own diligence and reach its own conclusions to inform business decisions. © 2018 Arbor Advisors, LLC — Member FINRA

Arbor Advisors provides M&A and capital raising

advisory services to high-growth technology companies

Find us at

www.arboradvisors.com

The Arbor Advisors Difference

Aligned Interests Focus exclusively on advising

entrepreneurs, never investors or buyers

Operational Experience Experience building companies as

entrepreneurs

Negotiation Framework Optimize results using the Harvard

Negotiation Project framework

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