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MARCC Roundup: Investor & advisor roundtable panel discussion

Our panel discussion with leading private equity investors in the affiliate marketing industry was a part of several live discussions hosted by Martech Record on December 6th in New York City as part of Marketing, Content & Commerce.

You can stream the panel discussion here.

The current state of the market has slowed the trend of top-tier firms investing in the affiliate marketing industry. Back in 2021, Martech Record wrote about the wave of such investments and how it was driving consolidation in a growing and evolving industry. But market changes have led to a reset, according to panelists.

“The market has changed pretty quickly in the last two quarters so we’re certainly seeing a meaningful slowdown in volume and within the advertising market, brand advertising is down,” said Ripan Kadakia of ZMC, an investor in and operator of media, entertainment, communications and technology businesses. Performance and affiliate categories, however, have held up, which is, as Kadakia explained, partly why ZMC recently acquired WPromote, a digital marketing agency focused on helping brands accelerate growth. Still, the company is keeping an eye on the macro economy to see how inflation, interest rates and global conflict continue to affect the market.

Marshall Phelps, an investor with MidOcean Partners, said the private market often takes longer than the public market to “reset expectations of buyers and sellers.” He agreed that until the trend of interest rates settles and becomes more certain, the private market will continue to see slowdowns and choppiness. But good opportunities still remain, he said.

“Once buyer and seller organizations do reset, there’s going to be a lot of money to invest in media and technology,” he said. “It’s just a matter of time.”

Jake Smilovitz of TCG said the current market has pushed the firm to think about where it wants to get exposure and where it hopes to develop relationships that it otherwise wouldn’t have the time and space to grow.

Phelps said the elements of what goes into an evaluation of a business are changing quickly, but the firms shouldn’t be spending time trying to predict the market and play games of macroeconomics, he said.

“You should think about trying to identify businesses that have opportunities to buy at a fair price, he said. “That’s how we approach it.”

The deals themselves have been changing as well. Recent deals have included a variety of contingencies, Kadakia said, and they are taking longer to get done. There’s often a cycle of pausing and returning to restructure.

“There’s more of that happening, and I expect that to be the story of next year,” he said, adding that he also anticipates seeing smaller deals.

Kadakia said he’s been telling his portfolio companies to focus on what they can control, think about investing thoughtfully and take opportunities to look at organic acquisitions.

Phelps said the advice to MidOcean Partners’ companies: Think about growth and be flexible in how they plan.

“Going into 2023, the range of outcomes feels much broader than in past years,” Phelps said.

That requires everyone to be “reasonable,” Smilovitz said. “Be reasonable on revenue, be reasonable on gross profit, be reasonable on costs.”

Smilovitz said TCG is taking a long view on “passion categories" where spend has stayed resilient in the long term.

Along with digital talent management and media firm Night Inc., TCG recently launched Night Capital, which is “basically a vehicle to go do M&A into some of these creator businesses, which we really view as the next iteration of the creator economy.”

“We continue to be super interested in the ways that distribution can be optimized for those types of businesses,” Smilovitz said.

Smilovitz, who was involved in the Wirecutter deal with the New York Time, said that was “almost a unicorn deal,” because the newspaper’s affiliate arm was small before Wirecutter.

“So there were no toes to be stepped on,” he said. “It was the perfect marriage of business model…and perfect brand alignment.”

Though investors are hesitant to predict what’s next for the market, “all anyone can do is focus on building a good, sustainable business,” Smilovitz said. “There are buyers for a good business in good markets and in bad markets.”

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