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Eric Ward, Director At goetzpartners, Discusses M&A Activity In Europe And Trends In The Online Advertising Space

Can you give some overview on the services offered by goetzpartners?

goetzpartners is a pan-European corporate advisory firm with about 200 professional across our 9 offices which are based in the UK, Germany, France, Russia, Spain, Czech Republic and Switzerland. We offer corporate finance and management consulting services under one roof, with a very deep network not only across Europe but also one that extends across to the US and Asia.

Technology, media and digital media are core sectors for our firm. The services the corporate finance division offers include advising on large fundraisings and exit strategy for investors and shareholders, buy side acquisitions for larger strategic players and sell side advisory roles for clients. We are also increasingly involved in helping some of the larger players in the market understand how they should approach their longer term M&A strategy in order to play a greater role in the online advertising ecosystem.

We base our advisory service model around execution excellence and most importantly providing deep industry knowledge. We are one of the few advisory firms that do this by working very closely with leading executives in the industry to assist our clients. We think this is particularly important in technology and digital media. The best deals come from developing a powerful strategic and creative thesis around an opportunity, as the most exciting buyers and seller combinations may not be the obvious ones. Delivering the sell side / fundraising valuation is driven by demonstrating the fundamental strategic value of the business to prospective buyers and financial sponsors.

What kind of momentum, in terms of M&A action, is goetzpartners seeing in the European market?

We've been seeing a significant rise in M&A activity across Europe. You have to bear in mind that M&A deals typically have a lead time of 9 to 12 months. From that perspective alone we are confident there will be a further increase in deal activity in the short to medium term. After a difficult 2008 and 2009 M&A is certainly back on the agenda for most players. The large strategic / industry players we talk to are actively thinking through how best to reshape their portfolio of assets. These include agencies, publishers, marketing services groups, infrastructure providers and content businesses. We expect most of these buyer groups to make a number of important acquisitions; which will make for very interesting times and keep us advisors quite busy.

From your perspective what would you say are the ad tech sweet spots for possible acquisitions in the minute?

That's quite an interesting question. Companies with significant demonstrable advertising technologies that can provide clear economic gain in the value chain are certainly very well positioned given the growing trend for audience buying through real time exchanges. Data is becoming increasingly important component in being able to target the right audience at the right time. Any technology platforms that facilitate this delivery of this data have the opportunity to rapidly become valuable.

With the fragmentation of the industry there is a growing issue around attribution models. We believe tag management solutions and analytics companies also have the potential to become very valuable businesses.

What impact do you think the recent acquisition of Dapper and the Microsoft investment in AppNexus will have on the industry?

The Microsoft strategic investment in AppNexus is certainly one of the smartest deals I have seen this year. Microsoft appears to be taking the challenge to Google in online advertising very seriously. I think there is certainly more to this transaction than most people realise. Most people perceive AppNexus as a DSP or ad exchange but the opportunity is greater than that. With Microsoft’s backing I would expect AppNexus to play an increasingly central role in online advertising delivery. The thing that I am personally paying close attention to is how AppNexus will strategically ensure their platform is distributed to all the right partners, particularly to agencies across Europe.

As for the Dapper / Yahoo transaction, it's clear that retargeting is becoming an increasingly important and powerful component of online marketing. What Criteo did to educate the market in such a short period of time was very impressive. Criteo is clearly the largest player but there are a few players emerging that have very strong technology. I think these companies are ideally suited for e-commerce and large marketing services businesses and I think there will be further acquisitions in the space in the next 12 months.

Will the big US M&A spree spread to Europe?

We’ve just come back from the US where we talked to some of the biggest companies in the industry both on the West and East coasts. It was encouraging to see that Europe was clearly on their strategic radar and a key priority.

Europe is full of very talented entrepreneurs and promising new technology driven companies. If these companies can position themselves well enough at the right time, there is no reason not to expect some larger US / Europe transatlantic deals over the next couple of years.

Having said that, it would be unrealistic to expect to see in Europe the same kind of jumbo deals that we have seen in the US. The European market is too fragmented and there are few European players that really have pan-European presence.

How do you see the role of agencies evolving in the data-driven display space? Will they need to acquire tech and talent to stay relevant?

Ultimately there is no doubt that agencies will have to acquire technology in the space in order to protect their underlying profitability. Google, Microsoft and emerging players are starting to eat their lunch as display buying is increasingly done over automated platforms. Let’s not forget that video will also move in a similar direction and traditionally media agencies have made the majority of their money through media buying and planning of TV commercials.

This time round the agencies have reacted faster to the changing display ecosystem then they did a few years ago when search and PPC bid management platforms first appeared. However the pace of technology is such that I think it will be hard for them to adapt rapidly enough. We have seen them start to develop trading desks but the real heartland of the advertising ecosystem still lies elsewhere. Acquisitions might be necessary for them to obtain the talent, tech and data skills they need, but they may also need to rethink their role – and focus more on strategy and planning than buying and executing

What are the key challenges US players are likely to face in penetrating the European market? What strategies do you think they take when growing their business in Europe?

Europe is not a single market like the US. It is comprised of a number of markets each with their local agency and advertiser cultures. Entry into the UK market does not mean entry into the European markets by any means. US buyers are now starting to understand this better now. It’s important for US companies to set up local operations run by local people very early on, otherwise they will rapidly find the market closed. Case in points are markets like Holland, the Nordic region or even Germany, which are mainly dominated by local players.

How do you see the mobile display space evolving – and what might be the opportunities in that channel?

Mobile is a very interesting channel. We see this channel as one with the greatest potential for publishers to monetise their content. Mobile doesn’t have the level of cookie / tracking technology (as of yet) so audience targeting is not as advanced as display. With the advent of tablets / iPads, we believe it’s a great medium for online publishers to sell their premium inventory and hence we are still somewhat surprised that publishers aren’t more focused on that channel.

Mobile gives you access to social, local and m-commerce which we all know are some of the fastest growing online segments. Business models that have built the right architecture and platform to capitalise on this have the potential to become very, very big. And businesses that can help advertisers buy on scale efficiently and solve the tracking and campaign management challenges in mobile (and the linkage with other channels) will be very well positioned.

Why are we not seeing significant M&A consolidation yet? What circumstances are required for this to happen?

The US online advertising industry has predominantly been funded by VC money. This means that a lot of the assets are quite overvalued and this never lends itself well to M&A and / or consolidation. Furthermore a number of high profile transactions in the space (Google / Admob) have really set the bar quite high in terms of valuation expectations going forward – again not conducive for M&A.

Secondly, because of the high underlying growth of the industry there is still no need for companies to seek greater economies of scale. Once that growth tapers off, M&A consolidation will come back in play. However we don’t expect to see that for a while though.

Having said that, we do expect to see large industry players making sizeable strategic acquisitions in order to enter into new markets.

What trends are we likely to see in the European display over the coming twelve months?

Online display will become increasingly an automated process over the next 12 months. We also expect Europe to fully catch-up to the US in that area.

Longer term we expect the majority of display (including video, mobile, etc) to become a fully automated process. This will probably happen faster than most people expect. What is holding this back is both publishers still achieving higher yields from selling their premium inventory directly and advertisers not being able to measure the effectiveness of branding campaigns very well.

Social media and technology advances will rapidly change that as it will allow advertisers to start measuring the effectiveness of campaigns through a form of social media measurement tool / metric. We also expect to see further technology developments at the ad serving level that will be able to fully manage publishers inventory and optimise yields more dynamically by taking into account both premium and non premium inventory at the same time. Yield publishers are starting to do this (and are doing a pretty good job at it) but there is still some way to go in our view.

Finally as audience buying becomes more prevalent, the value will increasingly shift from the demand side towards the supply side – and content may become king once again!

Eric Ward is Director at goetzpartners. He can be contacted at ward@goetzpartners.com.