Season 5, Episode 9: AdTech M&A and the business cycle (with Terence Kawaja)
Feb 26, 2025
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Terence Kawaja, CEO of LUMA Partners and an influential advisor in digital media, delves into the AdTech M&A landscape. He discusses the slow fundraising in 2024 and how it relates to economic cycles. Kawaja highlights AI's role as a catalyst for mergers, the impact of the FTC’s evolving policies on tech acquisitions, and the surprising new buyers entering the AdTech space. He also shares insights on how small businesses shape major platforms and the promising future for competition and innovation within the industry.
The digital advertising landscape is evolving with AI technologies driving efficiency and reshaping M&A activities, thus attracting significant industry interest.
Economic challenges like inflation and recession have slowed M&A in digital advertising, but new growth areas are sparking renewed optimism and strategic investments.
Deep dives
The Evolution of Digital Advertising
Digital advertising has witnessed a significant transformation, especially with the advent of programmatic advertising, which has allowed for increased efficiency and targeting. Leaders in the field, such as Terry Kawaja, emphasize the complexity of this environment, owing to its fragmentation and the multitude of business models involved. Created in 2010, Luma Partners was founded to address these complexities, believing that deep industry knowledge is essential for strategic advice. As this sector matures, it faces challenges such as fraud and high competition, necessitating consolidation for higher quality and efficiency.
Current Landscape of M&A Activity
After a prolonged period of stagnation, the landscape for mergers and acquisitions (M&A) in digital advertising is showing signs of recovery, bolstered by a renewed optimism among players in the industry. The recent years were marked by high inflation, risk of recession, and drastic cost-cutting by companies, which led to a significant decline in M&A activity. However, the emergence of new growth areas such as AI, commerce media, and connected TV (CTV) is paving the way for increased deal-making. Industry players are becoming more strategic, recognizing the need to invest in technologies that support their growth.
The Impact of Complexity on Ad-Tech Conversations
The inherent complexity of digital advertising poses challenges for communication between various stakeholders involved, from advertisers to agencies to publishers. Practitioners need to adequately synthesize and simplify technical complexities to facilitate understanding amongst those less familiar with the space, such as board members or investment committees. This complexity also brings greater risks, prompting a thorough evaluation process before strategic decisions are made. A common analogy suggests that, in digital advertising, one should 'measure seven times, cut once' to avoid pitfalls that could arise from misjudgments.
The Role of AI in Future Growth
AI is anticipated to play a transformative role in the digital advertising landscape, potentially accelerating M&A activities as companies harness its capabilities to improve efficiency and performance. This technological shift has prompted advertising firms to embrace AI-driven solutions, leading to the emergence of numerous startups seeking to innovate within the space. As these firms demonstrate scalable models with fewer employees, they are likely to attract acquisition interest from larger players within the industry. However, some caution against overestimating the impact of AI, underlining that while it can enhance operational capabilities, it will also fundamentally change the way businesses interact with consumers.
My guest on this episode of the podcast is Terence Kawaja, the CEO and founder of LUMA Partners, a boutique investment bank focusing on the digital media sector. Terry is a high-profile advisor for transactions in the marketing and advertising spaces, and LUMA Partners publishes the infamous LUMAscapes market maps for those ecosystems.
The topics of our discussion include:
Terry's general perspective on the digital advertising fundraising and M&A environment at the start of 2025;
Why 2024 was so slow regarding digital advertising fundraising and M&A;
Whether AdTech M&A follows the general business cycle;
Whether the social media platforms are acquisitive;
How the changing composition of the FTC impacts the outlook for ad tech M&A;
Which companies might be underestimated as buyers of AdTech;
Whether the widespread adoption of AI tools within the digital advertising space is an accelerant for M&A;
Whether the current digital media environment is closely comparable to any historical point in time.
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