While last year was a big one when it came to acquisitions in the ad agency world – as evidenced by Publicis’ $1.3 billion deal for digital/direct specialty firm Digitas - the majority of executives expect the level of merger and acquisition activity to dial up in 2007, particularly in the realm of specialty shops which handle the planning and buying of emerging media segments such as search and mobile.
That’s according to a new report released on Feb. 21 by the investment bank AdMedia Partners, which found that among the 3,200 companies participating in the survey 87 percent expect to either explore making such a deal or be approached by another prospective buyer in 2007, and nearly half expect they’ll complete a deal this year.
The report, Merger and Acquisition Prospects for Marketing Services and Internet Marketing Firms, says that most major agencies and marketing firms are hot to expand their capabilities in non-core but fast growing business through acquisitions. Companies most ripe for deals are those that specialize in search marketing, analytics, mobile marketing and “buzz/viral/guerilla marketing,” said the report.
Roughly 85 percent of those surveyed said that buyers should act now rather than wait, as the digital/interactive media space continues to rapidly grow in importance for most marketing companies. The only sticking point, said AdMedia Partners, is that the potential lack of quality targets, since many top companies have already been snatched up. That dynamic is driving up pricing, which is forcing companies to consider paying 7 to 8 times their EBIT value for marketing services firms.
“The last three years have seen a burgeoning market for mergers and acquisitions in which many of the top independent offline and online agencies were acquired,” said AdMedia Partners managing partner Abe Jones. “As the number of quality acquisition targets has shrunk over this time, we are seeing acquirers either scouring the market for hidden gems or aggressively courting top independents.”
As for traditional agencies, most of the executive surveyed do not expect nearly as much m&a interest in that space. Just 11 percent of respondents said they expect offline advertising and marketing service companies to see increased attention among buyers.