The number of global merger and acquisition deals involving advertising companies has increased by 25% in a year, with S4 Capital and Accenture leading the way in 2021.
In 2021, a total of 756 deals took place in which advertising companies either bought other businesses or were sold to them. That is up on the 602 deals carried out in 2020 during the pandemic slump, according to analysis by advisory firm Results, which has released end-of-year figures for the deals it has been tracking.
There was considerable regional variation, with the UK showing a 68% increase in the number of companies acquired, compared with 2020 (119 deals in 2021, up on 71 from the previous year), according to Results’ 2021 report The Marketing Services Sector Review.
North America generated the most activity, with 323 companies acquired in 2021 compared with 231 the year before (a 40% increase). Yet activity levels in Asia- Pacific and Western Europe were similar to 2020.
The global trajectory builds on half-year results, which showed a 22% rise in total deals mid-way through 2021.
The overall number of global deals is now approaching the level seen pre-pandemic, when 853 deals took place in 2019.
S4 Capital and Accenture were the two advertising services companies that completed the most acquisitions by the end of 2021, carrying out nine and six respectively. Meanwhile, Publicis acquired four companies and Omnicom secured three over the past 12 months.
It is unsurprising that S4 Capital is ahead, according to Results director James Kesner, who noted the company’s ongoing M&A focus on digital content, media and data plus its more recent interest in technology services. Meanwhile Accenture is returning to its previous habits, he said.
“S4 is a newer player and they are building through organic growth and acquisitions…[For them] it’s all about the right content at the right time with a clear M&A strategy and remit. It’s no surprise they are at the top of the list.
“Accenture have been historically active. They were a little quieter in recent times but their M&A focus has accelerated again, which is not a surprise,” Kesner told Campaign.
The 2021 results demonstrate a “renewed focus” on M&A activity by network agencies, who are not only looking to acquire firms with technology capabilities – an ongoing trend among agencies - but are also targeting conventional areas of business such as PR and performance marketing, to bolster existing services, added Kesner.
Ad agency networks that were traditionally the most dominant buyers have slowed down. At the same time, less established “challenger’ ad agency groups, with their digital-first approach, are appealing to private equity investors.
“You look back five years and it was traditional networks leading the charge but they’ve slowed down over recent years; they’ve had headwinds, increased competition from consultancies and IT services, and there are a lot of challenger [agency] brands that are growing,” Kesner said.
Most (82%) of the overall M&A activity in 2021 was as a result of strategic deals – those without disclosed majority private equity backing.
But many more deals now involve private equity transactions and this reflects the increased appetite and confidence of private equity firms in the marketing services sector, particularly in digital and performance marketing, said Kesner.
In contrast to long-term strategic deals, private equity transactions can be expected to lead to another cycle of M&A activity as ad companies are sold again.
“There has been a lot of activity from private equity over the last three or four years and we are going to start seeing more exits as hold periods mature. Private equity generally looks to hold investments for three to four years before an exit to a strategic deal or another private equity firm,” Kesner added.