M&A activity is down within the marketing communications sector, according to the latest tracking data from consulting firm, R3. For the first six months of 2017, R3 tracked a total of 186 deals in the marketing and advertising space worth a total of $4.1 billion. This marks a steep decline from the same period of 2016, with the total number of deals down 9 per cent and the total deal value down 39 per cent.
Thus far in 2017, The US and UK are leading in transaction volume, accounting for well over 50 per cent. The decrease in total M&A activity is the result of a significant slowdown in China – with only 12 deals in the country to date – 45 per cent less than in the same period of 2016.
Forty-nine per cent of the deals so far this year have targeted digital assets, which are broken down into two different categories. The ‘digital’ category represents digital creative, social media and content agencies, while ‘digital services’ focuses on ad tech or marketing agencies that rely on data analytics. This category was added into the tracking at the beginning of 2017 to account for the growing number of acquisitions in the adtech and martech sectors.
In sharp contrast to the first half of 2016, there has been an uptick in M&A activity from agency holding groups. At the close of Q2 in 2016, the largest deals were driven by cross-border and PE backed buyers. However, this year, agency holding groups account for over USD 1.5 billion of the total deals tracked thus far. In terms of investment, the cross-border and PE-backed buyers are focused heavily on digital and digital services agencies, while the agency holding companies and independent agencies are spending more to acquire agencies that focus on PR, BTL, experiential, etc. with digital coming in a close second.
In terms of total deal value, Dentsu leads the agency holding group pack with USD 526 million. However, in total number of deals, WPP edged slightly ahead with 18 deals compared to Dentsu’s 15. In terms of number of deals in each category, WPP’s acquisitions have been largely digital-centric, while Dentsu is more evenly spread across digital, creative, media and others.
The most notable development this year has been the continued rise of the unconventional buyer, dominating the Top 10 deal charts in nearly every region. Consulting firms, cloud companies and publishers have continued on their buying sprees, and Accenture leads the way with two deals on the global chart. Their acquisition of Boston-based mobile design firm, Intrepid, and their purchase of one of Germany’s largest digital agencies, SinnerSchrader were two such examples. Deloitte & PwC joined Accenture as other consulting firms to make the Top 14 Unconventional Buyers table, with other players including Snap, Salesforce, Time, Inc. and even Domino’s Pizza getting making acquisitions in the advertising space.