The Knowledge Economy Global Buyers Report 2018/19

Strong demand for M&A in 2019 is driven by industry convergence with a desire among buyers to deepen industry and digital expertise

By Ramone Param, Director, Equiteq

  • Buyers expect to complete 5 acquisitions over the next 2 to 3 years
  • Private equity expect to acquire 75% more businesses than strategic buyers
  • The optimum turnover size for an acquisition rose 18% since 2016
  • Strong demand for artificial intelligence, data analytics and Internet of Things capabilities

The Knowledge Economy Global Buyers Report analyzes the findings of our fifth comprehensive independent survey of global strategic buyers and private equity investors acquiring businesses across the knowledge economy. The report provides exclusive insights into current M&A trends among buyers that acquire knowledge-intensive services businesses across five segments: management consulting, IT services, media agencies, engineering consulting and human resources.

The following summarizes the main trends discussed in more detail in our recently published Knowledge Economy Global Buyers Report.

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Privacy in the digital and physical world

By Greg Fincke, Managing Director, Equiteq

It’s been widely reported that Yahoo and AOL, both owned by Verizon’s business unit Oath, are reading users’ emails to more effectively target advertising.

The WSJ moves beyond the headline issue of privacy and into the privacy trade-off users make with their free email providers. There is an interesting connection here to the concept of “razors” and “blades”, discussed in a previous post.  Email could be seen as the razor to Oath’s blade, i.e. how they make money, online advertising. Trying to monetize their “expensive” razor is proving tricky. At the very least it has generated plenty of media attention regarding privacy concerns.

The WSJ article references Yahoo’s ad-free email service for $3.49/month. There have been attempts at pay-for privacy social media platforms in the past. It is interesting to think about the digital assets available to consumers and the price of privacy. My sense is most of us have always thought of online ad targeting as benign. But as we shift more of our lives to the digital world, learn more about how our data is being used (sometimes after the fact), and start questioning where the boundaries are it begs the question: is there a future for digital pay-for privacy?

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Digital strategy: Razors wanted

By Greg Fincke, Managing Director, Equiteq

I recently listened to Sunil Gupta’s HBR IdeaCast on digital strategy – a topic relevant to many, if not all, of our clients. After providing examples of failed approaches to digital strategy he rightfully points out that in order to be successful, strategies need to incorporate four components:

  1. Business strategy
  2. Operations and value chain
  3. Customer engagement
  4. Organizational structure

I think this is an incredibly helpful and balanced perspective. When advising companies in the knowledge economy and looking at the M&A focus of the large players, we see far too much focus on a single component, specifically customer engagement. There are perhaps a number of reasons for this, for example you can see immediate success, outcomes are more tangible, etc.

However, where we see organizations making significant strides is when they take a far more comprehensive approach to their digital strategy and look beyond the digital experience of the customer as their sole focus.

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Consulting firm M&A market intelligence on digital marketing

mobile apps concept

The media industry has experienced significant change in recent years. Despite the ongoing presence of the printed medium, online content continues to gain prevalence and has now become the medium of choice. In line with this, digital media and marketing companies are becoming more attractive than ever as acquisition targets.

But what is digital marketing and why is it generating so much M&A interest? Analytics and intelligence software provider SAS describes digital marketing as ‘The promotion of products or brands via one or more forms of electronic media.’ SAS concludes that what sets digital apart from traditional marketing is data. Digital marketing uses channels and methods which allows a firm to analyze marketing campaigns and understand what is working and what isn’t in real time.

Digital marketing is comprised of three main categories: earned media, paid media and owned media, according to Titan SEO. However, each category does not stand alone, and using all three techniques in unison can be the most effective marketing method. The venn diagram below, from Titan SEO, outlines how each media segment exists in the digital marketing ecosystem.

digital marketing

Since 2010 digital marketing deals have doubled, outstripping the growth in overall media deals. This means deals in digital marketing are outpacing the market.

Digital marketing vol

The heat in this market is coming from the fact that this is a fast moving industry seeing huge amounts of change. Acquisition interest is thus driven by the need to quickly obtain these skills, rather than growing them in-house, which tends to require more time. The shift to digital means media and IT firms need to quickly acquire new media skills, technology and intellectual property (IP). There is also the opportunity for new customer channels to be acquired through various methods including mobile and social. Digital marketing is playing a pivotal role in this.

Nicola Kemp, Head of Features at Marketing magazine, agrees that the digital marketing ecosystem is in the midst of fundamental change and the industry’s true growth potential is only just beginning to be realized.

She says: “From the rise of the smartphone to the social media revolution, businesses are being challenged to meaningfully collect and analyze an ever-increasing pool of data. The importance of acquiring and embedding new skill sets into existing business models in order to better meet this demand cannot be over-estimated.”

Media and advertising companies are overwhelmingly the most prolific buyers in this area, having been responsible for 106 acquisitions since 2012, with the likes of WPP and Publicis Groupe involved. The next biggest acquirers are technology/IT services firms, such as IBM and Google, with 44 acquisitions. In a hot, fast moving sector, private equity firms will always be represented and firms such as The Carlyle Group and Berkshire Partners have made 23 acquisitions in this space since 2012. Finally, management consultancies such as Deloitte and McKinsey have also invested in this space, albeit in lower numbers, with 10 acquisitions made during the same period.

The areas within digital marketing that gain the most attention include customer analytics, mobile marketing and social media marketing, along with digital agencies and CRM/database marketing.

It goes without saying that digital technology organisations have had a dramatic impact on M&A in the world of marketing. Activity in this area is likely to continue apace in the coming years. As increasingly more services are digitized, it is only natural that digital marketing will grow alongside them.

If you’d like a full copy of our marketing intelligence report, please email us on info@equiteq.com