What's Happening?
Josh Wepman, managing director of technology investment banking at Houlihan Lokey, has identified company size, rather than performance, as the primary reason for the struggles of many publicly traded ad tech companies. Speaking at Exchanewire’s ATS London
conference, Wepman stated that most public ad tech firms have market caps too small to attract significant investment from the indices and mutual funds that drive substantial public valuations. He noted that the basket of publicly traded ad tech stocks he tracks has underperformed the broader tech sector, with multiples declining through 2025 into 2026. While deal activity is increasing, the average transaction size is growing, indicating fewer, larger deals. This dynamic leaves many ad tech companies around the $7 billion mark, too small to garner meaningful investment. Nick Macshane, founder of Progress Partners, further illustrated this point, describing the volatile and unpredictable stock performance of public ad tech companies, suggesting many should not be public.
Why It's Important?
This analysis is important for the U.S. business and financial sectors as it sheds light on the structural challenges faced by a segment of the tech industry. The difficulty for smaller ad tech companies to attract significant public investment means they may struggle to access capital for growth and innovation, potentially hindering their ability to compete with larger players. This could lead to increased consolidation within the ad tech space, as smaller firms become acquisition targets for larger enterprise companies like Salesforce, Adobe, and ServiceNow, or newer entrants such as Databricks and OpenAI. For investors, it highlights the risks and unpredictable nature of investing in smaller public ad tech companies, suggesting a preference for private equity or larger, more established tech firms. The trend of companies moving off public markets through 'take-private' deals, as seen with Doubleverify, LiveRamp, and Integral Ad Science, indicates that private ownership might be a more viable path for these businesses to achieve their growth objectives away from public market pressures.
What's Next?
The trend of ad tech companies going private is likely to continue, as firms seek to escape the pressures of public markets and attract more substantial, long-term investment. Investment bankers will likely play a crucial role in facilitating these take-private deals, as acquirers see value in businesses trading below their five-year highs. This consolidation could lead to a more concentrated ad tech landscape, with fewer but larger and more integrated players. Companies that remain public will face increasing pressure to demonstrate significant growth to attract and retain institutional investors. The challenge for these firms will be to scale their operations and market capitalization to a level that makes them attractive to major indices and mutual funds. Additionally, the entry of enterprise software giants and AI-focused companies into the ad tech space suggests a future where advertising technology is increasingly integrated into broader business solutions, potentially reshaping the competitive dynamics of the industry.
Beyond the Headlines
Beyond the financial mechanics, this situation reflects a broader maturation of the tech industry, where the initial exuberance of public offerings for smaller companies is giving way to a more pragmatic assessment of sustainable growth and market viability. It highlights the inherent tension between the desire for public liquidity and the realities of attracting large-scale institutional investment. The 'no rhyme or reason' volatility described by Nick Macshane suggests that public markets may not always be the most suitable environment for certain types of tech companies, particularly those with niche offerings or fluctuating growth trajectories. This could lead to a re-evaluation of when and why tech companies choose to go public, potentially favoring private funding rounds or strategic acquisitions as more stable pathways for development. Ultimately, this trend could foster a more robust, albeit less publicly visible, ad tech ecosystem, driven by strategic integrations and private capital rather than speculative public market valuations.
