M&A Activity Accelerates in Digital Marketing Services
M&A activity in digital marketing services is accelerating, as we anticipated in July, read full article here. Over the past two quarters, deal volume exceeded the quarterly average of 300 transactions over the last 7 years.
Notable deals, such as ECI’s acquisition of Croud, advised by JEGI CLARITY, highlight this trend. Looking ahead, we expect 2024 M&A levels to align with 2023, following the record-breaking momentum of 2021 and 2022.
M&A Activity in Digital Marketing Services since 2010:
*Source: Pitchbook Financial Database
While global M&A saw a decline in 2023-2024, valuations for high-quality digital assets remained resilient. The median EBITDA multiple since 2023 has remained around 13x, aligning with the long-term median of 13.4x, reflecting strong investor confidence in well-positioned, scaled assets.
EV/LTM EBITDA for Select Transactions since 2010:
PRIVATE EQUITY (PE) HAS AN ACTIVE ROLE IN DRIVING SECTOR CONSOLIDATION
PE represented 32% of YTD M&A activity in digital marketing services, with notable transactions like ECI’s investment in Croud, as mentioned earlier, Bridgepoint’s investment in SAMY and Alaris Equity Partners’ investment in Shipyard – all advised by JEGI CLARITY, demonstrating PE’s active role in driving consolidation. Key attractions for investors include the market’s impressive growth prospects – with the market projected to increase from £4.3bn in 2023 to £14bn by 2032 (CAGR of 14%), and the buy-and-build opportunity presented by the fragmented landscape.
DIGITAL MARKETING GROWTH FUELED BY NEW CHANNELS AND INCREASING DATA COMPLEXITY
The growth expected for digital marketing services will be driven by CMOs’ increasing emphasis on data-driven strategies and the shift toward digital engagement across a rapidly evolving landscape. Emerging channels such as CTV, Retail Media, and Social Commerce introduce added complexity, making agency expertise invaluable as brands navigate targeting and personalization. Privacy regulations are further constraining data visibility, increasing brands’ dependence on agencies to leverage advanced targeting solutions effectively. Growth in paid media and programmatic is expected to remain strong, with hyper-growth expected in these new channels.
INVESTORS ARE GROWING COMFORTABLE WITH GENERATIVE AI (GenAI)
Investors are increasingly comfortable with GenAI’s impact on the agency model, seeing parallels with the evolution of digital and programmatic advertising, which added complexity to media buying and increased reliance on agency expertise. As with the rise of programmatic, AI enhances agencies’ roles in defining data-driven audience groups and personalizing campaigns. By leveraging AI to optimize media spend across channels, agencies are positioned as crucial partners in navigating a more intricate advertising landscape, using advanced tools to deliver highly tailored, effective omnichannel strategies.
SCALE AND EXPOSURE TO TIER 1 MARKETS ARE KEY VALUE DRIVERS IN DIGITAL MARKETING SERVICES M&A
Valuations in digital marketing services are influenced by several key factors:
- Differentiated Proposition: Agencies with scalable, Tech and AI-driven, or specialized services command higher valuations.
- Scale: Our data suggests that size matters when it comes to valuation, with larger assets, EBITDA over £12.5m, trading at a median multiple of 16.5x, while smaller assets, EBITDA between £4m and £7.5m, trade at a median of 10.8x.
- U.S. Revenue Exposure: Higher U.S. revenue draws N. American PE interest (directionally >25% of revenues), creating competitive tension, in turn driving valuations.
- Strong Financial KPIs: attractive revenue growth, healthy margins, and strong client retention are critical for driving valuation multiples.
- Evidence of integration in Buy-and-Build: For companies following a buy-and-build strategy, effective and successful integration of acquisitions is a key value driver.
EBITDA range vs EBITDA multiple for Select Transactions:
CONCLUSION
M&A GROWTH EXPECTED TO BE DRIVEN BY ECONOMIC RECOVERY, PE EXIT AND DEMAND FOR SPECIALIST SKILLS
Looking ahead, we expect M&A activity in digital marketing to increase as economic conditions improve. Private Equity funds will likely continue deploying capital and exits will accelerate considering current hold periods. On the trade side, large agencies, driven by client demand, are likely to continue acquiring digital capabilities that are difficult to build internally.
Over the next 18 months, several PE-backed digital marketing groups across Europe and the US, held for over four years, are likely to come to market, including the likes of Labelium, Jakala, IDHL, Adswerve, Plus Company, and Tinuiti. Additionally, we foresee some consolidation among large PE-backed platforms across Europe, as agencies look to broaden geographic reach and potentially achieve the scale required for public listings.
