The current state of mergers and acquisitions in the marketing space and how valuations are being impacted:
Mergers and Acquisitions (M&A) generally refer to the joining of two companies or other business organizations into one; either as the two companies consolidate into one entity with both companies sharing ownership and control of the new enterprise (merger), or when one larger organization takes ownership of another party’s assets or stocks (acquisition). Mergers and Acquisitions usually take place because the parties believe this transaction will help them to both enhance financial performance and lower risks.
The world of digital marketing has been transforming at lightning speed in recent years due to the evolution of social media platforms and technological advances and how these are changing the way people perceive and utilize marketing messages. One of the ways marketing agencies are adapting to this change is M&A. Mergers and Acquisitions have been growing rapidly in the digital marketing space in the past few years. According to the latest market report from Hampleton Partners, a technology M&A advisory firm based in London, digital agencies and marketing services companies accounted for 64 percent of the total deal count between July 2014 and December 2016.
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I spoke with Arya Bina, the CEO of Kobe Digital about the current state of M&A in digital marketing spaces and he mentioned that companies can no longer rely on organic growth alone to fulfill their digital goals. There are many new trends for digital marketing businesses to use M&A in order to escalate their growth, strengthen their presence and competitive edge, as well as to implement change within their organizations. Some need such unions to be able to make sense of the data and their social marketing results so they can maximize their return on investment (ROI). Some will use multiple acquisitions around the globe to drive international growth. At any
Rate, all of them will need to have a clear picture of how to capture and maximize the benefits these acquisitions will bring to their businesses before committing to them.
Some of these new trends include the joining of assets across advertising and marketing sectors. Also, a host of new buyers are entering the arena, since recent surges in the big data analytics and programmatic technologies have encouraged other businesses to consider buying digital marketing assets as well. Companies now turn to acquisitions of tech-driven and digital business models to secure needed technologies and products and to close the innovation gap. Examples of the type of these new entrants are management consultants like Deloitte expanding their consultancy services, Verizon seeking to earn revenue from customer data and software firms like IBM aiming to complement their cloud offerings.
One big addition in recent years has been Chinese buyers, with about two-thirds of their deals being with Europe and North America. A reason for this addition could be that large Chinese Internet companies are somehow behind their American counterparts when it comes to API integration and technology that helps target adverts to specific users. The biggest deals included AppLovin being acquired by the Chinese investment firm Orient Hontai Capital for $1.4 Billion, followed by the $900 million in cash that a Chinese organization paid for Media.net. A growing middle class and realizing the need for M&A to gain access to strategic technologies and developing the country’s commercial capabilities are among other factors contributing to China’s increased deal activity.
Now, as to the impact of all this on valuations, data from Hampleton report shows that higher spending on a smaller number of larger investments has caused the value of the deals to increase. Hampleton considers this as a sign of buyers being willing to spend, with a decrease in venture capital funding, especially in advertising and technology, which will put even more pressure for market to consolidate. Moreover, EBITDA multiples (Earnings Before Interest, Taxes, Depreciation, and Amortization) have risen, which indicates that buyers are willing to pay for quality acquisitions in a market where operating margins in target companies are now being squeezed.
The huge number of Mergers and Acquisitions in the marketing industry shows that companies become stronger when they work together. When an established business buys a smaller company, this allows it to zoom in on one specific area and improve in that focused area, whether it is data analysis, content marketing or social sponsorship. While the execution of a merger definitely poses some risks and challenges to the parties involved, but it can also offer novel opportunities to unlock the digital marketing capabilities of companies.
Article by Hardik Oza
Hardik Oza is an SEO practitioner and has been working in SEO since last 5 years and also a contributor of well known SEO communities like SEMRush and Social Media Today, Page One Power, Search Engine People and many more.