Appetite remains for agency acquisitions across UK and Europe
A positive outlook and newfound resilience underpins the UK and EU marketing communications marketplace, with acquisition opportunities for businesses offering strong propositions and sought-after capabilities.
The appetite for mergers and acquisitions (M&A) has never been higher in the three years that Wadds Inc. has been operating. To find out more, we approached two industry specialists for their perspectives.
Paul Winterflood, a Media M&A Corporate Finance Partner at Moore Kingston Smith LLP, gave us his take on developments in the UK.
Paul Winterflood
How is the UK market performing right now?
The macro-economic conditions, in particular interest rate hikes, meant we came into 2022 pessimistic of the outlook for the first half of the year for the media and marketing services M&A market. However, the first quarter significantly surpassed expectations and while we’ve seen a drop off in deal completions in quarter two, we are still 6% up year-on-year compared to 2022, which was a great year.
Behind the numbers, there is definitely turbulence – we have experienced some nervousness from buyers, particularly from the US, and interest rate increases definitely makes leveraged deals harder to construct - deals are taking longer to complete too.
In addition to this, there have been continued macro shocks to the economy over the last six to seven years, including Brexit, Covid and the more recent interest rate hikes. Acquirers are now used to more turbulent economic periods and can see through any short-term issues if the capabilities and proposition are strong. Therefore, there is still strong acquirer appetite for good quality capabilities. Creative capabilities are highly sought after – so the Uncommon/Havas deal was not surprising.
2023 has seen acquisition activity from the networks increase. This could be due to Private Equity (PE) backed buyers being more impacted by interest rate rises making networks more competitive.
What’s the outlook for the next six to twelve months?
We are bullish about the outlook for the market for the medium-term. The acquirer pool is fragmented and PE interest in the sector is high, so there are lots of different buyers competing for acquisitions.
In the short-term, with the economic back drop, there is continued uncertainty, which leads to turbulence in mergers and acquisitions. However, for owners of sought after capabilities and agencies with strong propositions leading to good growth and profitability, it remains a good market.
Are there any trends agency owners should have on their radar?
PE houses continue to be interested in the sector due to the opportunities it offers. This includes both existing players and newcomers resulting in a fragmented buyer pool, which presents a strong market for mergers and acquisitions. As a result, PE are involved in over 50% of agency deals on average. Therefore, if you are considering selling your agency you are likely to sell directly or indirectly to PE - this is something we regularly discuss with clients.
Digital capabilities will continue to be highly sought after, particularly e-commerce, performance and influencer capabilities. As the digital groups continue to grow rapidly, the demand for strong creative capabilities will continue as they look for content to win the battle for attention, competing for acquisitions with the networks.
Agencies in niches often perform well and are sought after. The sports market is particularly attractive at the moment due to money flowing into the industry, in combination with the opportunity to engage with fans, not to mention the interaction with sports-stars through influencer campaigns.
Moore Kingston Smith LLP is the only firm of media accountants and advisers with a dedicated office of over 100 media specialists that proactively support the extensive range of needs of independent media businesses – serving the creative industries including marketing services. Its media specialist corporate finance team offer a holistic, full-service approach to transactions including M&A tax advisory.
Mark Madsen is the founder of Madsen Advisory, which specialises in mergers and acquisitions of marketing communication agencies. He gave the following views on what’s happening in Europe.
Mark Madsen
How is the European market performing right now ?
The European market in communications continues to grow. Looking at the two major European business centres of Germany and France, even with Germany technically in recession, it is clear that the German communication market is providing growth opportunities for local and international agencies.
France has, with the easing of employment legislation, been encouraging the growth of the agency market there. In the last five years, its economy has grown twice as much as Germany’s, and outpaced Britain, Italy and Spain. France is home to more than 100 of the world’s largest companies, more than any other European country, and its leading luxury firms are achieving world domination.
What’s the outlook for the next six to twelve months?
This is undoubtably one of the toughest trading periods the sector has experienced however there is a positive outlook particularly if inflation comes under control. Client companies will continue to maintain tight cost control over discretionary spend, however, technology advancements will allow agencies to maintain margins.
The outlook for the next twelve months very much depends on the area the agency specialises in. Corporate and public affairs agencies are expected to continue to do well, healthcare also but perhaps less so whilst consumer and technology will be tougher. The large technology companies all seem to be cutting back and viewing their markets and therefore market spend on a quarterly basis. However, while the economy looks somewhat strained going forwards, the agencies that are good at marketing and selling themselves well will continue to grow.
Are there any trends agency owners should have on their radar?
ESG, Sustainability, Purpose, B Corp are all trends that agency owners should be looking at. Increasingly clients, investors and employees are asking that agencies should not only be good stewards of their capital but also of their natural and social capital and have the necessary governance framework in place to support this.
Agencies are trying to get to grips with how clients’ audiences are consuming information and interacting with them. Agencies are increasingly looking at AI, use of data and data analytics. Explainer videos/short clips are being re-imagined and becoming creative as they become the main way for brands to interact with audiences. Use of digital channels continues to be a key aspect.
Madsen Advisory helps the management and shareholders of independent marketing communication consultancies to prepare their businesses for sale, particularly by helping to identify and maximise the value in advance of a sale, identifying the buyers, helping them to manage the process of the sale and negotiating to a satisfactory solution for all parties. To date 88 successful agency sales have been made.
At Wadds Inc., we work with businesses in the creative sectors and beyond with their company direction, supporting strategic growth plans. Let us know on 07771 851407 if you’d like a chat.