Learn how the creator economy is transforming the marketing landscape, and how to cultivate partnerships to grow engaged communities at Social Media Week: The Creatorverse, May 16–18 in NY. Register now to secure your early bird pass.
With 2021 reported as a record-setting year for merger and acquisition (M&A) deal volumes in the marcoms sector globally, it looks like the year ahead is set to be more of the same—another year of big business awaits. And the year has begun in earnest as already in the first two weeks of 2022 we have seen media agency Goodstuff Communications acquired by Stagwell Group and a move to takeover M&C Saatchi.
What last year tells us
Of course, last year’s M&A activity contained a portion of deals delayed by the first wave of Covid-19 and associated lockdowns that inflated some of the stats. But there was also a bigger and steeper trading bounce-back from 2020 in some parts of the industry, such as PR, than many predicted.
That trend accelerated some of the M&A activity, but the key factors fueling the records aren’t showing any signs of changing as we head into 2022. Arguably there are more now—and they’re stronger than ever.
The return of the networks
Clearly, corporate growth and investment correlate directly with business confidence and success so any unexpected development in the tragedy that is Covid-19 could dramatically impact that confidence in a heartbeat. However, assuming we continue to learn to live with the virus in 2022, we may see a full set of buyers in the market for the first time in five years. After a lengthy hiatus, the networks are coming back to compete with the consultancies, private equity houses and challenger groups such as Stagwell, Dept, Croud and others like them.
We may also see an even greater supply of really high-quality ambitious companies and their owners wanting to seize their moment. Sectors like data, social and ecommerce, as well as “reputation” businesses that can help drive environmental and social responsibility agendas and associated share price performance, are likely to see some compelling M&A action.
Evergreen drivers of M&A
Most people view M&A through one of two lenses: either as purely transactional, with buyers and sellers doing deals to make money, or as an essential tool for business growth. Through whichever lens you look at it, 2022 has the hallmarks of another record-breaker.
Taking the transactional financial deal-making perspective first, from the summer of 2021 we had definitely moved into a “sellers’ market” with high-paced M&A processes and highly-priced transactions. This was perhaps most noticeable around the world of social and influencers, but by no means confined to the tech and data boundaries of the industry where you might generally expect deal “froth.”
Most people view M&A through one of two lenses: either as purely transactional… or as an essential tool for business growth.
Many businesses in these sectors are coming to maturity now and demonstrating proof of concept. Money was chasing social and influencers for spectacular growth in the past, but now there’s scale, which also brings a perception of robustness alongside growth that’s still pretty staggering.
That kind of market continues and logically it attracts sellers. Buyers tread with caution but with the pace of change in the industry—with consolidation amongst existing players as much as new platforms—it’s a very risky strategy to sit on the sidelines and wait indefinitely for the market to cool off.
Look now at the purists’ view of M&A as a tool for growth. It has a single irrefutable advantage over organic expansion: speed. Marcoms is a business environment where speed matters. It also arguably offers access to the genuine best-in-class capabilities that can simply be impossible to build through hiring.
This is also a market where being in the top quartile really matters, especially when leading the way for clients in rapidly emerging marketing disciplines and media. Scale gives clients the reassurance they need when venturing into new and complex areas.
2022—potentially a record-breaking year
We expect to see the combination of factors above driving more records in 2022 in the U.K. and Europe. Private equity investors will continue to professionally comb the industry for the strongest businesses in their class and seek to fuel their journeys. The management consultancy world will continue to expand its territory into digital marketing services, data and technologies.
The specialist consolidators in digital, data, business process or intelligence—businesses like Media.Monks—will also remain highly active. But the supercharger for 2022 could well be the full return of the networks, who will have largely completed their rationalization and reorganization programs and have seen trading performance corrected, which will allow them to meaningfully target the same progressive M&A territory as the consolidators, in parallel with reinvestment in their “traditional” disciplines. We’ll see how their Q4 trading looks in a couple of weeks, but this could set the scene for a major step-up in M&A this year.
Combined with many highly scaled PE-backed businesses that may well see 2022 as a great year for their next event, there is a possibility for the networks to deliver some significant re-tooling through M&A this year. Watch this space.