A few weeks ago, I posted on LinkedIn that for every dollar holdcos gave the Trade Desk, the Trade Desk was rewarded with $22 in Market Cap. As of September 6th, that number is actually $23.
This is a basic Price to Sales ratio analysis that compares the market value of a company (market cap) and their revenue. Companies with high scalability and high growth potential are rewarded with higher P/S multiples.
- HoldCo Average is 1.06
- Consultancy Average is 2.69 (Accenture’s is the revenue leader and has a P/S of 3.36)
- Platforms can range from 2.48 (LiveRamp) to 23.06 (Meta is the Revenue leader and has a P/S of 8.81)
In addition to the announced Vivendi spin, holdco M&A rumors have been circulating. The “Big 6” may soon be the “Big 4 or 5.”
Holdcos Should Spin Their Technology/Platform Business Into Separate Companies
My thesis is simple: Holdcos would be more valuable if they were spun into separate platform and service units.
- Data/technology/platforms would be valued between 2x and 23x higher. These offerings would improve dramatically if forced to compete on the open market.
- Consolidated, focused agency businesses would improve quality and scale, increasing valuation over 2X
This would mean fewer public agency groups, but a more vibrant, scalable and valuable marketplace for marketing services, data and technology. Fewer public agency groups would also create space for stronger independent agency offerings.
Increased investment, better technology, better services and a more competitive market will help the ad business grow faster, or at least, die slower.
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