Marketing Service companies are attracting M&A interest, but not from the traditional Big 5
We explore why mid-market acquirers and investors are interested in the marketing services sector.
The UK Marketing Services sector, like many industries, was adversely affected when the pandemic hit our shores. However, with a pivot in recent years towards digital services, many businesses in this sector were better prepared for the demands of the pandemic than peers with more traditional models.
Most agencies dealing with digital creative and web coding were able to make a seamless transition to remote/home working, and rather than having to place staff on furlough, or worse make redundancies, many firms have recorded an increase in the working week output of their employees without the shackles of the artificial 9 to 5.
Digital acceleration, resilience and M&A interest
Clearly also the demand for digital marketing services has increased as consumers have moved their purchasing habits online, and consumer brands and retailers have moved faster on their digital trajectory. Marketing agencies specialising in market research, surveys and analysis have benefitted as brands look to understand their consumers in the digital retail environment.
The comparatively resilient trading performance of marketing services companies over the last six months has been a beacon for investors, both private equity and trade. M&A in the latter group has historically been dominated by the ‘Big 5’ agencies, however, from our frequent contact points with the market it is apparent that these conglomerates have taken a step back from the frontline in order to focus their resources on internal damage control from the pandemic within their own organisations.
What about the Big 5?
It appears the large agencies which for so long have dominated the landscape have been slower to adapt to the changing demands of the sector. They have perhaps been weighed down by their legacy offerings at the execution end of the market. In their place, we have seen a clamour from mid-market organisations (such as Four, Mission, Sideshow, Strat7 etc.), who have experienced tangible but, for all intents and purposes, minimal damage from the pandemic and have now found themselves in a position with strong cash balances with which to grow their businesses through M&A.
Overall however, and encouragingly, marketing services is an attractive market at the moment when businesses in other sectors are struggling to keep afloat.