Economic headwinds have hit the marketing industry in recent weeks as brands like trading platform Crypto.com cut budgets, ad agencies laid off staff and stock prices for digital ad sellers like Meta Platforms inc
and Taboola.com GmbH.
falling faster than the tech-heavy Nasdaq Composite.
However, according to analysts and investors, mergers and acquisitions in the marketing industry have largely continued unabated. Several high-level buyers plan to continue actively seeking deals, although they predict a less stable market in the coming months.
Global M&A volumes in the first half of 2022 fell by more than 20% year-on-year, according to a report by PricewaterhouseCoopers LLP. New research from marketing and media M&A advisory firm Ciesco Ltd. however, found that transactions in the marketing sector increased by 38% in volume over the same period.
In the past two quarters, 789 deals were announced in the marketing industry, according to Ciesco, up from a record-breaking 571 such deals in the first half of 2021. Acquisitions of marketing strategy firms led the way, up 135% year-over-year, followed by deals for digitally-focused marketing agencies, which were up of 66%, said Chris Sahota, Ciesco chief executive.
Recent examples include advertising holding company Publicis Groupe SAs
May’s acquisition of e-commerce software company Profitero for approximately $200 million, digital advertising and marketing firm S4 Capital PLC’s acquisition of engineering firm TheoremOne LLC in May, and the sale of advertising agency Mekanism to Plus Co., a marketing Holding company backed by private equity firm CVC Capital Partners.
One reason for the stability of the marketing industry is investor confidence in the long-term growth of marketing budgets.
A pandemic-era shift toward online shopping has forced businesses to accelerate their adoption of e-commerce and cloud computing capabilities, and increased pressure on marketing firms competing with consulting and information technology firms to embrace the digital evolution , said Laurence Hinz, global head of mergers and acquisitions at advertising holding company Dentsu International Ltd.
“You cannot underestimate the effect of Covid,” said Mr. Hinz. “That’s the key to most M&A activity.”
Dentsu, which announced in February that it would spend $2.6 billion on mergers and acquisitions over the next three years, is looking at acquisitions to expand its capabilities in cloud services, content production and data analytics, Herr said note
Another key factor in marketing M&A is the growing influence of private equity and the sector’s recent move away from loss-making tech companies.
More than 50% of deals for marketing firms in 2022 were made by private equity or related parties, and that share has been rising in recent years, said Alec Dafferner, partner at technology consulting and investment firm GP Bullhound Holdings Ltd. Ciesco noted Blackstone inc
and Carlyle Group LP as the top buyers of 2022 so far in this space.
“Most good marketing companies are very profitable,” said Stephen Master, director of private equity firm GTCR LLC. “This profitability has allowed them to weather some of the recent backlash and changes in investment philosophy of some private equity firms.”
Buyers said marketing M&A won’t see the same dramatic decline as technology, but said the industry isn’t immune to macro trends. Some private equity firms are now reluctant to make large purchases because they have higher risks and higher interest rates on the debt they use to do business, Mr Dafferner said.
Similarly, valuations for marketing companies have fallen slightly since mid-2021, when many companies fueled by the growth of the pandemic posted valuations well in excess of 20 times earnings before interest, taxes, depreciation and amortization, said Ben Wiener, CEO of the Wongdoody advertising agency. owned by IT giant Infosys GmbH.
“The growth is unsustainable and nobody wants to be able to buy a company that needs cash,” said Mr. Wiener.
Mr. Wiener said he was reviewing potential deals in Latin America and Asia-Pacific but could wait a few months as both buyers and sellers reassess the market.
As buyers scrutinize target companies’ financials more closely, some founders may also choose to delay a sale unless they have urgent capital needs, said Michael Wand, managing director of the Carlyle Group.
“The inferior one [marketing companies]who may have acted in the last year’s environment can now be left alone on the dance floor,” said Mr. Wand.
Still, many high-profile buyers see no reason to slow down. Mr Wand said Carlyle’s digital agency, Dept, will continue a rush that saw it complete five acquisitions last year and three so far this year, with a view to influencer marketing and expansion in Asia Pacific.
GTCR is also reviewing targets ranging from ad-supported digital publishers to performance marketing agencies, after selling a stake in programmatic ad buying platform Simpli.fi to Blackstone for $1.5 billion last June, it said Mr. Master.
Michael Nyman, CEO of marketing network Acceleration LLC, which recently acquired influencer marketing agency Pixly and sold a majority stake in his own company to private equity firm Solace Capital Partners LLC, said he sees no shortage of clients interested be considering a sale after the economic ups and downs of the past three years.
“You have a lot of uncertainties that create a lot of opportunities,” Mr Nyman said.
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