By Ramone Param, Director, Equiteq
We have released a summary of our detailed review of digital agencies M&A and investment trends.
Equiteq is pleased to present the results of our review of M&A and equity market trends across the digital agency space. Digital agency M&A activity was strong in the first of half 2019 (H1 2019) as cash-rich buyers continued to acquire new capabilities in a tight talent market. Deal activity has been strong over the last five years as buyers continue to build new capabilities via M&A. In H1 2019, deal activity was broadly in line with H1 2018. M&A is concentrated on North America and Europe with a growing market emerging in the Asia Pacific.
M&A Deal Volumes FY 2010 to H1 2019
Note: Dotted line indicates deals in first half of the respective year.
Source: Equiteq Market Intelligence, S&P Capital IQ
There is considerable activity from non-traditional media agency buyers from the consulting and technology sector. This is putting pressure on the “Big Six” media networks – Dentsu, Havas, Interpublic Group (IPG), Omnicom, Publicis and WPP. These major marketing networks have also experienced declines in their share price over the past couple of years, driving reorganizations and new M&A.
Share prices of the big five marketing networks vs. the Equiteq Digital Agencies Share Price Index
*Big five consists of the median performance of the five listed companies within the “Big six” – Dentsu, IPG, Omnicom, Publicis and WPP.
Digital transformation requires companies to focus on both the strategic development of their customer value proposition and their operating model, driving demand for service providers. Global spending on digital transformation is expected to be ca.$1.18trn in 2019, an increase of 17.9% from 2018, according to data from IDC. IDC estimates the digital transformation professional services market to total ca.$106bn in 2018 and is expected to grow at a CAGR of 13.9% to 2022.
A key focus of digital transformation continues to be improving customer engagement, but digitization is increasingly impacting every part of the organization.
Industry players re-positioning in the digital transformation space
Source: Equiteq Market Intelligence
Note: Bubble position represents the average for the respective industry. Businesses in the Winners Zone will have successfully blended innovative media capabilities with advanced digital and consulting skills. Illustrative names shown for businesses within each bubble that we observe moving into this zone.
We are observing a convergence of media agencies with digital consulting and business advisory, driven by evolving client demands. Some media agencies have already started to move into the “Winners Zone” of the market incorporating a blend of digital transformation solutions; most need M&A to expedite this. This has been observed through milestone deals like Publicis’ acquisition of Epsilon and IPG’s acquisition of AMS.
A culture of constant innovation is a prerequisite for media agencies and their clients. Furthermore, a deep understanding of the latest digital technologies is also fundamental knowledge through the Fourth Industrial Revolution. There is an unparalleled opportunity for pioneering business owners to create value and make profitable exits within the disruption zone of the knowledge economy.
To download the summary of the report, please click here.
If you would like to enquire about receiving a full copy of our Digital Agencies report, or if you would like to discuss your current strategic objectives as a business owner or acquisition strategy as an acquirer, please get in touch.