Co-founded by former Apple and Pepsi chief John Sculley and CEO David A. Steinberg, Zeta Global was valued at $1.3 billion in 2017 following a $140 million Series F funding round and has made several acquisitions since its founding in 2007.
The strategy of purchasing several companies and coalescing them into a single stack is similar to that of Sizmek, which was a publicly listed company offering a full-stack ad-tech solution including a contextual advertising service, a buy-side ad server and other services and was later purchased by private equity firm Vector Capital in 2016 for $122 million.
Sizmek went on to purchase Rocket Fuel, a former publicly listed DSP, for $145 million the following year with many in the sector dubbing the resulting offering a “frankenstack.”
The company pitched its wares as an alternative to the duopoly of Google and Facebook, but it struggled to successfully integrate the DSP (especially given the decline of the former Rocket Fuel managed service business) as it lacked the scale to be sustainable.
Observers note how Sizmek’s ownership underestimated the integration costs associated with uniting the Rocket Fuel DSP to its preexisting assets with Vector eventually offloading it to fellow private equity house Cerberus Capital Management.
Financial details disclosed in Sizmek’s Chapter 11 filing revealed that its revenue forecast dropped to $170 million for 2019, down from $399 million in 2016. Cerberus later forced Sizmek into Chapter 11 proceedings with court documents noting it held $172 million in debt with several supply-side platforms subsequently suspending trading with its DSP (although some have since recommenced trading).
Some sources question whether anyone in the ad-tech space has succeeded in the frankenstack strategy outside of the industry’s biggest names like Google.
However, Steinberg is adamant his company won’t meet with the same difficulties when attempting to integrate the newly acquired DSP, claiming the privately held company is comfortably profitable.
“We don’t buy any company that we don’t fully believe we can integrate into our tech stack within 12 months,” Steinberg told Adweek.
“Almost all of the companies you see fail, never integrate,” he added. “They effectively run the businesses as multiple divisions and they kind of shove them into a cloud, we don’t believe that works. … So, unlike a lot of other companies that burn through cash, we can just focus on building a very profitable business.”
Steinberg explained how Zeta Global’s 1,500 employees include a 750-person engineering team based in India that helps accelerate its tech integration and also helps control costs.
He also said another key difference between his company and the slew of currently distressed ad-tech companies making cutback after cutback is the fact that approximately two-thirds of Zeta’s revenue is generated by recurring SaaS-based CRM income.
This is opposed to the more volatile whims of the ad-tech market where DSPs are vulnerable to the seasonal fluctuations in media spend plus the near-constant shifting tectonics of programmatic spend.
“Most of the companies that are kind of glomming themselves together [through serial acquisitions] are really trying to buy what I call revenue scale,” Steinberg said. “And that very rarely works because ultimately, they hit up some type of ad-tech problem where they end up being disintermediated by the next guy.”
The CEO said a common characteristic among the assets it has acquired over the course of the past decade is that many of them do not generate a huge amount of revenue when bought by Zeta but do contain tech that has the potential to become highly lucrative.