Rampant inflation, rising interest rates, an escalation of the conflict in Europe, and the looming threat of a recession has continued to put pressure on the public markets and deal activity. It seems the only constant is uncertainty, with valuations and deal volumes suffering as a result.
Uncertainty is also a challenge on industry-specific trends, as the Digital Media and Marketing ecosystem continues to work through shifting data and privacy restrictions, as well as the return to post-lockdown life. That said, these challenges are balanced by a rise in alternative solutions, as well as growing channels that continue to lean into the use of data, addressability, and performance, such as CTV and Commerce Media.
While total Q3 deal volume was down relative to Q2, this can largely be attributed to a drop-off in digital content deals (which were propping up Q2 numbers in the first place). Ad Tech actually saw an increase QoQ in both overall and scaled deal activity (>$100mm) – up 36% and 150% respectively. MarTech on the other hand, continued to see a decline in both overall and scaled deal activity.
With valuations remaining low and significant capital ready to be deployed, private equity continues to be a significant driver of activity across all three verticals in our coverage area. This quarter, private equity was responsible for the majority of the scaled deals in MarTech. MiQ, an ad tech company, was acquired for $900mm by Bridgepoint group, and Warburg Pincus acquired Internet Brands for $12bn, the largest deal of the quarter.
In the public markets, stock prices continued to trend down as both Ad Tech and MarTech businesses began to see more pressure in their financial results and future guidance. Those companies that were able to beat expectations, or more importantly, maintain / raise guidance, were rewarded for it, with a handful of companies up over 40% in the quarter. Overall, what we’ve seen during the last few quarters is a reversion in valuations back to historical norms, with both Ad Tech and MarTech trading around 4-5x net revenue.
Key Q3 Takeaways
• Exogenous factors from prior quarters continue to be the primary source of downward pressure on valuations.
• Scaled Deal activity (>$100mm) QoQ was down meaningfully in Digital Content (53%) and MarTech (25%), and up (150%) in Ad Tech.
• Valuations have returned to their 10-year historical norms, though this time, Ad Tech is remaining at parity with MarTech.
• Private Equity continues to grow in prominence.