Merger and acquisition activity among marketing, media and related technology firms could heat up in 2016, with more prospective sellers seeking deals and buyers' interest remaining high.
Fifty-four percent of respondents to an annual industry survey said they would explore a sale of their company next year, according to mergers and acquisitions firm AdMedia Partners, which queried executives in the U.S. and abroad. That figure represents a huge uptick from last year's survey, in which 40 percent said they would consider selling.
At the same time, interest among potential buyers held steady, with about two-thirds of respondents reporting they would seek acquisition targets.
Intriguingly, 79 percent of respondents advised both buyers and sellers to act now. This marks the first time that percentage has been identical in at least a decade, said AdMedia managing director Seth Alpert. "It's a good time for both buyers and sellers" looking to take advantage, respectively, of the current low rates and strong valuations.
Plus, "it's not just the holding companies seeking deals," Alpert said. "The kinds of buyers for marketing services firms has really expanded." One example of this trend, he said, was ICF International's acquisition of midsize advertising shop Olson for $295 million. Prior to that deal, ICF, which specializes in customer engagement and systems integration, was virtually unknown in the agency arena.
"On the part of buyers, there's a recognition of all the things that are changing, and the way to deal with that, and to remain competitive, is to augment their capabilities," Alpert said. "And the fastest and perhaps safest way of doing that is acquiring a company that's doing what you aren't doing, and doing it successfully."
Potential sellers, of course, saw Olson fetch premium prices, and they naturally want to ride the gravy train. More recently, Essence Digital was gobbled up by WPP's GroupM, and Groupo ABC was acquired by Omnicom's DDB.
Sectors rise and fall
Three sectors saw a significant increase in respondents' interest compared to last year: market research, ad tech and custom content/native advertising. "You've got a sense that just being a great creative shop, it's nice, but it's not enough anymore," said Alpert. "Certainly, if you're one of the major buyers, you've already got plenty of that stuff," so bulking up in other areas makes sense.
Somewhat surprisingly, high-growth sectors such as mobile, analytics and CRM/database marketing saw steep drops in respondent interest for possible acquisition and expansion. (It should be noted, however, that analytics, while down sharply year over year, remains among the hottest areas overall.)
One possible explanation, Alpert said, is that respondents believe there are few quality companies in these sectors left to purchase. That could, in turn, drive up asking prices for remaining targets and give prospective buyers pause.
And, despite the continued buzz around mobile, prospective buyers might believe the category has a specific set of limitations.
"That's a completely project-driven business," Alpert said. "Once you've completed the app for whoever the heck it is, you're done. Project-driven businesses are really much harder to sell—but not impossible."
Here's a page of the report that shows the most desired sectors: