Media Sector M&A in 2016
Despite the political turbulence, 2016 was another bumper year for M&A activity, with over 46,000 transactions completed globally. Here is our review of the 285 deals recorded on Kingston Smith’s marketing and media deal tracker in 2016:
Inbound Activity Dominates
Just over half of all deals recorded involved a cross-border transaction, as was the case in 2015. The UK was a popular place to buy again; with the number of UK companies being sold exceeding the number making acquisitions. North America was the most popular region for UK cross-border transactions accounting for 45% of all overseas deals. The quality of the UK media industry, as well as the fact that UK acquisitions are something of a bargain following the post Brexit sterling devaluation, leads us to predict that this trend will continue into 2017. [International Infographic]
Once again, nearly 50% of the US firms which made UK based acquisitions in the marketing and media sectors in 2016 were headquartered in New York. The infographic below shows the location of the headquarters of US buyers. New York and California are the key areas of the US for UK companies to target when looking to sell to US buyers. If you are interested in selling your Company or setting up overseas, Kingston Smith and our contacts in our $1 billion Morison KSi network can assist.
The demand for digital skillsets continued in 2016. A total of 73% of the deals analysed had a digital focus. Within the marketing services sector, agencies with excellent digital capabilities were unsurprisingly in highest demand with digital agencies making up 53% of deals.
Full service digital agencies were most in demand, accounting for 20% of digital marketing transactions. Indeed, the return of the full service agency is a trend that we expect to continue in 2017, as clients demand a more joined up service.
Companies improving their digital architecture and online digital experience lead to digital design capabilities being the second most popular digital sector. Demand for these skills is coming from three sources – marketing services agencies, and the two disrupters in the sector:professional services firms such as Accenture, and IT services companies such as Tech Mahindra.
Sports marketing consultancies were in high demand in 2016. Dentsu in particular were keen acquirers in this sector, making two acquisitions in the year.
WPP and Dentsu once again made the most UK acquisitions in the year, focusing on the digital marketing sector, which underlines the fact that digital skills are in demand for all acquirers.
Following its IPO in May 2016, The Marketing Group has begun building at a rapid pace, ending the year with 24 subsidiaries. The group has ambitions to challenge the global networks and so will be one to watch in the future.
Disruption in the marketing services sector is coming from multiple angles; the aforementioned Tech Mahindra’s acquisition of The Bio Agency as well as Accenture’s acquisition of creative agency Karmarama are testament to that.
Karmarama is a member (for the final year) of the Kingston Smith 2016 Annual Survey Top 50 UK Independent Marketing Groups. The activity of the Top 50 is a key barometer of the health of the UK marketing services industry, with sales to the global groups common as well as acquisitions. In 2016 we recorded eight acquisitions being made by the Top 50, including serial acquirers Four Communications acquiring Rain and Packer Forbes, and Oliver Marketing acquiring content shop Adjust-Your-Set.
Outlook for 2017
The global political situation will continue to be a major topic of conversation in board rooms globally and will have a major impact on M&A activity for the foreseeable future. While sterling remains relatively low compared to the US dollar, inbound activity will continue to dominate, as high quality UK media businesses can be acquired at relatively low prices by overseas buyers. In particular we expect demand from the US to remain strong for the foreseeable future.
We expect to see increasing disruption within the marketing services sector in 2017. The return of the full service agency, competition from IT services companies and professional services firms are trends that we expect to continue.