Jul 11, 2023

The investor class hasn’t always gotten ad tech. Although ad tech companies compete against Google, Amazon and Facebook, most consumers couldn’t name a single one. And while ad tech bumps up against SaaS – which tech investors are familiar with – it’s not quite subscription software. Boutique investment banks that specialize in media and digital marketing tech, such as LUMA and JEGI, take advantage of this knowledge gap. But when an ad tech company goes belly up – and its destiny is being decided by indifferent creditors – it becomes difficult for unfamiliar bankers to capture (or preserve) the value. Obviously, I’m talking about MediaMath. But a similar Chapter 11 bankruptcy played out in 2019, when Sizmek’s private equity backers called it quits. The Sizmek sitch Vector Capital was the PE firm that consolidated Sizmek, Rocket Fuel and a number of smaller ad tech startups into one Frankenstein tech stack. When that didn’t pan out – and Vector stopped fronting money to an unprofitable Sizmek – another PE firm, called Cerberus, went from debtholder to equity holder. But unlike Vector, which initially had a fully-fledged vision for how to win in the ad tech sector, Cerberus just owned the debt. For that reason, it’s possible that Cerberus did well on the Sizmek deal, just like a bank might “do well” by foreclosing on and selling a house. But that’s because Cerberus loaned a relatively a small amount to fund Vector’s vision for building the Sizmek biz – and then took over the whole thing when Vector pulled out. Filing for bankruptcy can be a good move for the debtholder, because it goes through a formal process with the priorities being to cover payroll and pay back debtholders. This is important, because it speaks to why Goldman shed MediaMath’s headcount and chose bankruptcy, rather than selling MediaMath as a going concern. Sizmek was sold off in three pieces as part of a fire sale: the Sizmek ad server, the Rocket Fuel ad-buying unit and Peer39’s contextual targeting tech. And during the bankruptcy auctions, there was constant tension between the bankers and the buyers, who could work both sides of the equation. Let me explain. Flashtalking, Adform and other ad serving competitors – all potential acquirers – got to look at Sizmek’s books as part of the due diligence process. They were also haggling over the price while simultaneously hiring Sizmek’s sales and service leaders and poaching its best accounts. Competitor-acquirers could deflate their offers knowing full well Sizmek’s value was draining day by day. Regardless, neither Flashtalking nor Adform – or any indie ad tech player, for that matter – was fated to own Sizmek. Once the price was set, Amazon was always going to win. But when industry outsiders sell unfamiliar assets to insiders that understand what they’re actually worth and how the value is changing on the live market, it makes for tricky DSP bankruptcies. To reuse the home foreclosure metaphor, when a bank takes over a house – and goes from debt holder to outright owner – it understands the value and how the price will fluctuate with the market or go down over time without maintenance. But an ad tech business – especially a demand-side platform – isn’t like that. Programmatic and people The Sizmek ad server business was insulated from sudden account and revenue losses, because transitioning from one ad server to another can be laborious. Yet practically any MediaMath DSP customer can switch from MediaMath to Google DV360 or The Trade Desk in – literally – a matter of minutes. Another difference is that Sizmek retained many of its employees. Although the business was threadbare, Amazon acquired a live book of business and a mostly intact team of hard-to-find programmatic talent. Two months went by between when Cerberus forced Sizmek into bankruptcy and Amazon closed its deal for the Sizmek ad server. But the DSP part of the Sizmek deal, which went to Zeta Global, closed in only a couple weeks. If Goldman Sachs, MediaMath’s debtholder, is still negotiating the value of MediaMath come mid-August, that would be a cruel joke – like trying to sell the steam coming off a mug. The assets lose value on a near daily basis. Because valuing a programmatic business is about more than the value of the asset itself. A banker might think, “Hey, it’s a tech business. Isn’t the whole point that it’s the platform, not the people?” But that couldn’t be further from the truth. One of the uncomfortable truths about programmatic tech is that the tech is a commodity. Programmatic businesses are built on humans with intimate knowledge of how programmatic tech works and people who know how to service accounts and the needs of different verticals. Behind all the automation and algorithmic whatnot, third-party DSPs like MediaMath, The Trade Desk, Adform, Basis – the whole lot – are essentially flying the same plane. The difference mostly comes down to the people in the cockpit. The flagships Consider two of MediaMath’s blue chip clients: Havas and Macy’s. MediaMath and Macy’s have been working together since 2015 – which is also when MediaMath hired two former Macy’s executives: Abhijit Shome and Iday Shanawaz. Shome, the retailer’s VP of marketing, joined MediaMath as an SVP, and Shanawaz, previously director of omnichannel customer ecosystem at Macy’s, reported to him as VP of MediaMath’s retail vertical. MediaMath poached the marketing hires from Macy’s, but in a way that tied the two companies together, not poaching as a competitor or antagonist. Neither Shome nor Shanawaz stayed at MediaMath long – they both left after roughly one year – but other executives moved from Macy’s to MediaMath and the account was preserved. Now that the MediaMath DSP no longer operates, it’s safe to assume that Macy’s is channeling its demand to its other DSP providers. And Neil Nguyen, who named CEO of MediaMath last year and was on the board of the company since 2021, was Havas’s global chief data digital officer from 2018 to 2021. Which is a long way to say that programmatic tech is often more about the people behind the machine, than the machine itself. And if the people are gone, what is MediaMath? Follow James Hercher ( @JamesHercher ) and AdExchanger ( @adexchanger ) on Twitter, for as long as Twitter lasts. “ Data-Driven Thinking ” is written by members of the media community and contains fresh ideas on the digital revolution in media. Related Stories