Download mergers and acquisitions prospects for marketing services, media

MERGERS AND ACQUISITIONS PROSPECTS
FOR MARKETING SERVICES, MEDIA AND
RELATED TECHNOLOGY FIRMS
nd
22
ANNUAL
MARKET
SURVEY
2016
Table of Contents
Executive Summary
3
Detailed Findings
4
Methodology
18
About AdMedia Partners
20
Executive Summary
In late 2015, AdMedia Partners, Inc. conducted its 22nd annual
survey of senior executives at leading marketing services, media
and related technology companies for their take on industry
mergers and acquisitions prospects in 2016.
Respondents continue to have a generally positive outlook for
M&A in these sectors, particularly for digital, analytics and social
media businesses. As was the case last year, about two-thirds of
respondents expect to seek acquisition targets in 2016.
Interestingly, sellers’ intent to transact increased significantly to
54% versus 40% last year. This 14% increase in intent to sell
corresponds inversely to a 14% decrease in intent to seek
investment, down from 35% last year to 21%.
Key findings include:
2015: A Busy Year for M&A
- Over two-thirds (68%) of respondents were approached by a
buyer in 2015, up from 63% in 2014.
- Likewise, there was an uptick in respondents who actually
received an offer, from 23% last year to 29% this year.
- Interestingly, the percentage of respondents involved in actual
closed transactions was in line with last year.
- The trend thus seems to be greater activity in buyers looking
for deals, but this does not necessarily translate into more
closings. One possible explanation is that there are more and
more buyers in the marketing services and media space, but a
more fixed number of sellers.
2016: Positive Outlook for M&A
- The vast majority (81%) of respondents believe that M&A by
strategic buyers will increase in 2016; for financial buyers this
number is only 44%, down from 55% last year and 49% the
year before that.
- Similarly, there was a marked increase in the percentage of
respondents who say they will seek a sale of their company in
2016: 54% versus just 40% a year ago.
- For the first time in well over a decade, the percentage of
respondents who would advise buyers to act now and the
percentage that would advise sellers to act now is identical at
79%. This likely reflects a belief that buyers should act while
rates remain low and sellers should take advantage of strong
current valuations.
Growth Expectations
- 74% of respondents expect that digital will represent 40% or
more of their business in two years, up from 46% currently.
Mobile is expected to grow too, with 35% of respondents
expecting that the portion of their revenue from mobile will be
over 40% the next two years, up from 14% currently.
- Over half of respondents expect growth of more than 40% for
social (55%), custom content/native ads (55%), programmatic
(57%), mobile (65%), and video (53%).
- 84% of respondents expect the more mature sectors of both
search and display to grow at less than 15%.
Opinions on Valuations
- Similar to last year, the areas in which respondents were most
interested expanding or acquiring were in analytics, digital,
social and custom content/native advertising sectors.
Generally, these areas tend to command valuation
expectations at the highest levels.
2016 Market Survey | www.admediapartners.com
% Interest
Weighted
Average
Multiple
Ad Tech
Analytics
Mobile Marketing
Digital Agencies
Social Marketing
Custom Content/Native Advertising
CRM/Database Marketing
Healthcare Marketing
Design/User Experience
Integrated Ad Agencies
Marketing/Strategic Consulting
Market Research
Experiential Marketing
33%
51%
36%
51%
46%
46%
38%
28%
29%
21%
37%
25%
22%
8.5
8.0
8.0
7.5
7.5
7.5
7.5
7.5
7.0
7.0
6.5
6.5
6.5
Shopper Marketing
15%
6.5
Sector
- Three sectors enjoyed an increase in the percentage of
-
-
-
respondents that were interested: ad tech, up from 29% last
year to 33%, market research, up from 18% last year to 25%
and custom content/native advertising, up from 44% last year
to 46%.
The largest declines in the percentage of interest by
respondents were for mobile (-14%), analytics (-13%),
CRM/database marketing (-8%) and shopper marketing (-9%)
—a somewhat surprising trend given that in our experience,
these remain sought after services, and tend to command
strong multiples. One possible explanation is that there are a
relatively small number of independent quality companies in
these sectors, which can drive up valuations and may give
buyers pause.
Expected multiples by sector were close to where they were in
last year’s survey, which is most likely a reflection of the
finding that respondents believe that this is a good time for
both buyers and sellers to transact.
Please note that the multiples above are averages that reflect
expectations. There are factors in any specific situation that
can move actual deal multiples significantly up or down, such
as company size, growth rate, client list, revenue
concentration, profit margins and the presence or absence of
differentiating skills or proprietary technology.
Changing Landscape
- When asked about drivers of M&A, respondents commented
-
on ad blocking and user experience. While on the surface
these appear to be wholly unrelated trends, there is a point of
view that ad blocking has arisen as a result of obtrusive ads
that deliver little value to consumers, whereas there is also
currently a marketplace trend towards improving
user/customer experience and delivering marketing messages
and content that are highly relevant to the target audience.
Analytics, programmatic, social and new media remain
disruptive industry issues—offering opportunities to deliver
higher returns for clients and a higher quality experience for
consumers, while also posing a threat to the traditional agency
model from technology companies and new media providers
who are offering innovative ways to interact with consumers.
3
Detailed Findings
M&A Activities in 2015
Q. In the past year, which of the following M&A-related activities has your company been involved in?
- Over two-thirds (68%) of respondents
Fig. 1 - 2015 vs. 2014 M&A Activities
were approached by a buyer, up from
63% in 2014.
- More than half (53%) were approached
by a strategic buyer, a slight increase
over 2014 when 49% of respondents
reported this activity.
53%
Approached by a strategic buyer
49%
41%
Approached by a financial investor
38%
- Four in ten (41%) were approached by a
financial investor, a slight increase over
2014.
29%
Made one or more acquisition(s)
35%
- Less than one-third (29%) of respondents
made one or more acquisitions, a
significant decrease over the 35%
reported last year.
- There was a notable increase in
companies that received an offer. Three
in ten (29%) respondents reported
receiving an offer in 2015 compared to
23% in 2014.
- Acquisitions by a strategic buyer (12%)
were in line with the 11% reported in
2014. Respondents who were acquired
by or received funding from a financial
investor remained at 7%, consistent with
2014.
29%
Received an offer
23%
12%
Acquired by a strategic buyer
11%
7%
Acquired or received funding from a
financial investor
Involved in a merger
7%
3%
11%
2015
2014
- In 2015, 3% of respondents were
involved in a merger, a sharp decrease
over the 11% reported last year.
- It is interesting to note that despite an
uptick in approaches by strategic buyers
and financial investors in 2015, the
percentage of respondents that were
involved in actual closed transactions was
flat.
Note: numbers exclude mentions of “None”
2016 Market Survey | www.admediapartners.com
5
M&A Expectations for 2016
Q. For those who have M&A expectations for 2016, which of the following M&A-related activities do you
expect your company to pursue?
- Respondents continue to be optimistic,
with nearly two-thirds (63%) expecting to
seek an acquisition target in 2016. This
is consistent with the 62% reported in
2015.
Fig. 2 - 2016 vs. 2015 M&A Expectations
63%
Seek an acquisition target
62%
- The attitudes of sellers have changed
markedly. Overall, 54% anticipate that
they will explore a sale of their company
in 2016, up from 40% in 2015.
- Two in ten (21%) plan to seek
investment funding in 2016—a sizable
decrease over the 35% in 2015.
- Sellers appear to be more eager than they
were last year, while buyer interest
remains the same. Due to the recent
volume and valuation of deals in the
market, it appears more sellers are
interested in completing a transaction in
the year ahead.
54%
Explore a sale of the
company
40%
21%
Seek investment/growth
funding
2016
35%
2015
Note: numbers exclude mentions of “None”
2016 Market Survey | www.admediapartners.com
6
Areas of Expansion Interest
Q. Is your company considering expanding or acquiring any of the following businesses?
- The most sought after areas of interest for
expansion or acquisition remained
consistent with prior years: analytics
(51%), digital (51%) and social (46%).
- The largest increases in interest were for
market research (+7%), ad tech (+4%)
and custom content/native advertising
(+2%).
- However, compared to the 2015 survey,
there has been a significant decrease in
interest in other high growth areas.
Interest in analytics dropped sharply from
the prior year (64% versus 51%) and
CRM interest dropped from 46% to 38%.
- Interest in mobile marketing had the
most significant drop, from 50% last year
to 36% for 2016.
- This seems to be at odds with the result in
the previous question indicating no fall off
in interest in making acquisitions. Perhaps
this may reflect an increased focus by
buyers on acquiring for growth in general
in addition to acquisition for expanding
specific capabilities.
- One possible explanation for the drop in
interest in certain high growth sectors
could be a relatively small number of
quality companies with critical mass
available in the market, which would drive
up valuations and may give some buyers
pause; likewise, organic growth in these
esoteric sectors is challenging.
Fig. 3 - 2016 Areas of Expansion Interest
Analytics
51%
Digital agencies
51%
Social marketing
46%
Custom content/native advertising
46%
CRM/database marketing
38%
Marketing/strategic consulting
37%
Mobile marketing
36%
Ad tech
33%
Design/user experience
29%
Healthcare marketing
28%
Market research
25%
Experiential marketing
22%
Integrated advertising agencies
21%
Shopper marketing
15%
Note: numbers exclude mentions of “Don’t know”
2016 Market Survey | www.admediapartners.com
7
M&A Expectations for 2016 –
Strategic vs. Financial Buyers
Q. Compared to 2015, do you think M&A in your industry—driven by either strategic or financial buyers—will
be up, flat or down in 2016?
- The vast majority (81%) expect that M&A
by strategic buyers will be up in 2016.
This figure is consistent with our 2015
survey, when 81% of respondents held
this belief.
- Less than half (44%) of respondents
anticipate an upward shift in M&A by
financial buyers. This is a sharp
decrease from the response reported in
2015 (55%).
Fig. 4 - M&A Expectations for Strategic or Financial Buyers
81%
Up
44%
17%
Flat
Down
43%
2%
13%
Strategic Buyers
“There will be more and
more consolidation as larger
shops seek to acquire nichebased content marketing
firms to gain expertise in
new areas of content
marketing.”
“Agencies will add martech to integrate
media into creative practices.”
“Similar to 2015 levels.”
Financial Buyers
“Strategic buyers will more and more often come from
outside the industry—consultants and other businesses
will morph to get a piece of the explosive
communications business.”
“Programmatic platforms will be the lead in acquiring
companies.”
“There will be further expansion of agencies to
control the margin erosion in media, due to
adoption of technology. The marriage of tech
services & creative is now happening in a brand
new evolution.”
“Agencies will support existing digital services
with improved analytics.”
“The drive will be to continue to pursue broader service offerings. Buyers will be looking to purchase
firms in areas where they do not have a capability. Sellers will be looking to develop a more integrated
offering to become more attractive to buyers.”
Note: numbers exclude mentions of “Don’t know”
2016 Market Survey | www.admediapartners.com
8
Disruptive Industry Trends
Q. What trends and technologies are most disruptive to your industry?
- The newest emerging trend in this year’s survey
is ad blocking, which was mentioned by a
significant number of respondents as an industry
threat.
- In addition, tailoring user experience to best
serve the customer arose as an evolving trend
focus of marketers.
- Significant trends similar to last year include:

Analytics was mentioned more than
any other single factor as a disruptive
industry issue. This result
demonstrates the increasing
importance of data-driven marketing.

Programmatic continues to be a key
topic among marketers.

Social and new media are also
perceived as competitive threats to
traditional agencies.
“Two disruptive trends are the growing
power of non-traditional players in
communications, such as Deloitte Digital,
and the influence of platforms compared
to agencies.”
“Firms that provide a robust analytics service
platform and solid insights based on the data,
combined with strategic and executional
ability, will lead the way.”
- Behavior of new media players like Facebook
and Google continues to drive traffic and shape
the way consumers access content.
“Providing quality creative and cutting edge
UX services will be key.”
“Competitive practices of Google and
Facebook.”
2016 Market Survey | www.admediapartners.com
“Human-centric innovation, creativity and IP
are being valued more so than in recent
years.”
“Mismanagement/over-acceleration of social
media is moving into being a problem…when
there is too much information, each piece—
no matter how targeted—is of less
importance.”
“New programs streamlining content distribution,
plus advances in technologies like virtual reality,
will probably change the landscape.”
9
Digital Landscape
Q. Currently, what percentage of your business is digital? What percentage of your business do you
anticipate will be digital in two years?
- Today, over half (54%) of respondents’
Fig. 5 – Digital Portion of Business
businesses were less than 40% digital
while a quarter (24%) are over 80%.
- When asked about expectations for their
businesses two years from now, only a
quarter (26%) anticipate their digital
business will be less than 40% digital. In
fact, a third (31%) predict their digital
businesses will be over 80%.
22%
0-20%
10%
32%
20-40%
16%
9%
40-60%
31%
13%
60-80%
12%
24%
80-100%
31%
Today
In Two Years
Note: numbers exclude mentions of “Don’t know”
2016 Market Survey | www.admediapartners.com
10
Mobile Landscape
Q. Currently, what percentage of your business is mobile? What percentage of your business do you
anticipate will be mobile in two years?
- Today, nearly two thirds (63%) of
Fig. 6 – Mobile Portion of Business
respondents’ businesses were less than
20% mobile while 14% are over 40%
mobile.
63%
- In contrast, when asked about
expectations for their businesses two
years from now, only 24% expect less
than 20% of their business will be mobile,
while over a third (35%) predict over 40%
in two years.
0-20%
24%
23%
20-40%
41%
- The results point to a change in the
marketing environment, as the focus shifts
from desktop to mobile.
11%
40-60%
20%
3%
Greater than 60%
15%
Today
In Two Years
Note: numbers exclude mentions of “Don’t know”
2016 Market Survey | www.admediapartners.com
11
Advice to Prospective Buyers and Sellers
Q. Given the M&A environment that you foresee for 2016, would you advise prospective buyers to act now or
wait? Would you advise prospective sellers to act now or wait?
- A significant majority (79%) of respondents would advise buyers to act now.
- In addition, a significant majority (79%) of respondents would advise sellers to act now, the highest response rate in at least 15
years.
- For the first time since at least 2002, the differential between advising buyers and sellers to act now has disappeared—a strong
sign that the market may be poised for activity with eager buyers and sellers.
Fig. 7 - Advice to Prospective Buyers & Sellers – Act Now
92%
88%
87%
85%
84%
79%
83%
82%
80%
79% 79%
77%
74%
70%
68%
65%
64%
60%
58%
57%
50%
52%
51%
34%
51%
32%
31%
27%
23%
20%
2002
2003
2004
2005
2006
2007
2008
Buyers
2016 Market Survey | www.admediapartners.com
2009
2010
2011
2012
2013
2014
2015
2016
Sellers
12
Reasoning Behind Advice to Prospective
Buyers and Sellers
Q. Why would you give such advice to prospective buyers and sellers?
- The dominant explanation (40%) given by
those offering advice to prospective
buyers and sellers is that the timing is
right—strategic and financial market
interests are currently aligned for
favorable conditions. This explanation
was up sharply over the 30% of
responses in this category one year ago.
Fig. 8 - Advice to Buyers and Sellers
Current timing is right
40%
Low interest rate environment
16%
Market will improve
14%
Uncertainty of market, economy, election
14%
- Respondents also noted the availability of
abundant inexpensive financing in their
advice.
Depends on specfic goal/needs
Market will decline
“With many brands facing serious
business/marketing challenges, this is
the time for agencies to add depth to
their capabilities.”
“The pace of change is great, so companies in a strong
enough position to sell should do so—the future is more
uncertain than ever.”
9%
7%
“Low borrowing costs support
higher valuations right now. Higher
interest rates over the next 12-24
months will dampen valuations and
provide opportunities for buyers at
sellers' expenses.”
“Strike while the iron is hot.”
“Business in 2015 has been relatively frothy.”
“Large agencies (i.e. prospective
buyers) will continue to struggle to adapt
to the new media marketplace and the
associated business/service models
required, so there is urgency to acquire
the right capabilities and talent.
Prospective sellers should entertain
offers, but continued channel disruption
is only going to increase demand for
advanced acquisition targets.”
2016 Market Survey | www.admediapartners.com
“Interest rates are low, and there is optimism afoot.”
“It is a good climate for both buyers and sellers with
abundant, inexpensive capital.”
13
Growth Expectations for 2016
Q. What revenue growth rate do you anticipate in 2015 for your own businesses?
- The median expected growth rate for
respondents’ own businesses (18%) is
consistent with 2015 results – relatively
bullish compared with the last several
years.
Fig. 9 - 2016 Business Growth Expectations
Less than 5%
5%
- A quarter (25%) of respondents are very
bullish and believe their business will grow
at least 20% in 2016.
5 - 10%
29%
10 - 15%
20%
15 - 20%
21%
20 - 25%
10%
25 - 30%
1%
Over 30%
14%
Fig. 10 - Overall Median Business Growth Expectations
20%
18%
18%
15%
13%
13%
13%
13%
2011
2012
2013
2014
10%
5%
Note: numbers exclude mentions of “Don’t Know”
2016 Market Survey | www.admediapartners.com
2007
2008
2009
2010
2015
2016
14
Advertising Growth Expectations for 2015
Q. What growth rate do you anticipate in 2016 for overall advertising spending?
- Sentiment has been steady regarding
Fig. 11 - 2016 Advertising Growth Expectations
respondents’ expectations for overall ad
spending. The median expected growth
rate for ad spending in 2016 is 3%, a
consistent result over the last few years.
- Almost half (47%) of respondents expect
Less than 2%
15%
overall ad spending to grow 2 to 4% in
2016; this finding is consistent with 2015
expectations.
2 - 4%
47%
4 - 6%
6 - 8%
16%
6%
8 - 10%
8%
Over 10%
8%
Fig. 12 - Overall Median Advertising Growth Expectations
5%
5%
3%
3%
3%
3%
3%
3%
3%
-5%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Note: numbers exclude mentions of “Don’t Know”
2016 Market Survey | www.admediapartners.com
15
Advertising Growth Expectations –
by Category
Q. What growth rate do you anticipate in 2016 for social, custom content/native advertising, programmatic,
mobile, video, search and online display ad spending and buying?
- Respondents expect growth rates above 15% for social (55%), custom content (55%), programmatic (57%), mobile (65%) and
video (53%).
- Most respondents predict growth of less than 15% for the more mature categories of search (84%) and display (84%).
Fig. 13 - Expected Growth
Rates
0 - 10%
15%
10 - 15%
30%
SOCIAL
15 - 20%
27%
20 - 25%
17%
55% of Respondents
25 - 30%
Over 30%
Fig. 14 - Expected Growth
Rates
6%
5%
0 - 10%
16%
10 - 15%
CUSTOM CONTENT/
NATIVE
ADVERTISING
29%
15 - 20%
24%
20 - 25%
18%
55% of Respondents
25 - 30%
Over 30%
Fig. 15 - Expected Growth
Rates
8%
5%
0 - 10%
17%
10 - 15%
26%
15 - 20%
26%
PROGRAMMATIC
20 - 25%
14%
57% of Respondents
25 - 30%
Over 30%
10%
7%
Note: numbers exclude mentions of “Don’t Know”
2016 Market Survey | www.admediapartners.com
16
Advertising Growth Expectations –
by Category, Continued
Q. What growth rate do you anticipate in 2016 for social, custom content/native advertising, programmatic,
mobile, video, search and online display ad spending and buying?
Fig. 16 - Expected Growth
Rates
0 - 10%
8%
10 - 15%
MOBILE
MARKETING
27%
15 - 20%
20%
20 - 25%
17%
65% of Respondents
25 - 30%
Fig. 17 - Expected Growth
Rates
13%
Over 30%
15%
0 - 10%
15%
10 - 15%
32%
VIDEO
15 - 20%
19%
20 - 25%
18%
53% of Respondents
Fig. 18 - Expected Growth
Rates
25 - 30%
8%
Over 30%
8%
0 - 10%
44%
10 - 15%
SEARCH
ADVERTISING
40%
15 - 20%
8%
20 - 25%
3%
25 - 30%
3%
16% of Respondents
Over 30%
Fig. 19 - Expected Growth
Rates
ONLINE DISPLAY
2%
54%
0 - 10%
10 - 15%
30%
15 - 20%
11%
20 - 25%
2%
16% of Respondents
25 - 30%
Over 30%
0%
3%
Note: numbers exclude mentions of “Don’t Know”
2016 Market Survey | www.admediapartners.com
17
Methodology
METHODOLOGY
Background & Methodology
- In Q4 2015, AdMedia Partners conducted its 22nd annual survey on the outlook for M&A for marketing services, media and
related technology firms in the coming year. Over 6,000 domestic and international executives in advertising, marketing services,
digital marketing, marketing technology, media technology, media or digital media were invited to take part in a 5-minute online
survey.
- Respondents were asked to describe the nature of their businesses and were classified into one of three groups. Below is a
summary of the makeup of the respondents.
Nature of Business
% of Total
Businesses involved solely in Services
29%
Businesses involved in Content and related work
45%
Other businesses related to Marketing or Media Technology
26%
Total
100%
- Respondents were asked to choose a range which described their company's annual revenue. Below is a summary of the
makeup of the responses.
Annual Revenue
% of Total
$50 Million or less
79%
$51 - $500 Million
13%
Over $500 Million
4%
Don’t know/refused
4%
Total
100%
Analytical Summary
- Throughout this report, results are reported in the aggregate.
- Data from all respondents was analyzed regardless of whether they completed the survey in its entirety.
- Participants were asked several open-ended questions to aid in understanding the "whys" behind the numbers. Where possible,
responses to these questions have been coded and tabulated.
- Where historical data is available and the comparison worthy, comparisons between years have been made.
- All percentages were rounded up or down to the nearest whole number. As such, percentages may not add
to 100%.
2016 Market Survey | www.admediapartners.com
19
About AdMedia Partners
METHODOLOGY
About AdMedia Partners, Inc.
AdMedia Partners is a leading M&A advisor that provides middle-market mergers and acquisition advisory services to marketing,
media and related technology businesses. Founded in 1990 and located in New York City, the firm has completed over 230
transactions worth over $11 billion.
AdMedia was founded by former advertising, media and financial executives who recognized the market need for an M&A advisory
firm focused specifically on the rapidly changing marketing and media industries. AdMedia has provided transactional services and
strategic and financial advice to the world's leading advertising and media companies. The firm's industry knowledge and strong
transactional skills provide the best outcomes for both sellers and buyers—the strategic value that AdMedia Partners brings to every
assignment.
AdMedia's group of managing directors is among the most experienced financial advisors in the marketing services, media and
related technology industries. Their diverse backgrounds as former operating and financial executives and entrepreneurs provide
unique insights into both the strategic and operating issues that surface during mergers, acquisitions and divestitures. Clients benefit
from the managing directors' keen and unique perspectives into the current themes and trends within the sectors that AdMedia
covers. Most importantly, the managing directors speak the same language and have shared backgrounds with the clients they serve.
The combination of AdMedia's industry expertise and financial advisory experience provides clients with a unique offering of industryfocused deal strategy and strong transactional experience. Unlike other financial advisory firms that provide more junior staff as the
day-to-day contact, AdMedia assigns two managing directors to every assignment with a lead MD as the main point of contact. A
team of experienced professionals supports the managing directors, allowing them to dedicate 100% of their time to working on
behalf of clients.
Marketing & Business Services
-
Advertising
BPO
Brand Identity/Design
Consulting
Corporate Communications
CRM/Loyalty
Direct/Database Marketing
Entertainment Marketing
Experiential Marketing
Government Affairs
Healthcare Marketing
Market Research
Media Buying & Planning
Promotional/Shopper Marketing
Digital Marketing & Technology
-
2016 Market Survey | www.admediapartners.com
Advertising Technology
Interactive TV
Mobile Marketing, Content &
Applications
Online Advertising & Measurement
Online Market Research
Performance Marketing & Lead
Generation
Programmatic Buying
Search Marketing
Social Media Marketing
UX/User Experience Design
Web & Application Development
Media & Digital Media
-
Affiliate & Ad Networks
B2B Publishing
Consumer Magazines
Content Agencies
Information Publishing
Online Communities
Online Media
User-Generated Content
21
Select AdMedia Partners, Inc. Transactions
2016 Market Survey | www.admediapartners.com
22
Select AdMedia Partners, Inc. Transactions,
Continued
2016 Market Survey | www.admediapartners.com
23
Contact
AdMedia Partners, Inc.
Three Park Avenue, 31st Floor
New York, NY 10016
212-759-1870
[email protected]
www.admediapartners.com