Media Buying Briefing: Private equity firms are the new buyers of agencies as M&A market heats up

By Michael Bürgi

Given that 2021 was a pretty active year for mergers and acquisitions (and minority investments) across the advertising landscape, the media agency world had its share of wheeling and dealing). Stagwell and S4 continued their search for shops to fold into their growing holding companies, while non-traditional groups like Jellyfish and BrandTech Group found their own way to accomplish the same.

But there’s an interesting twist to activity in 2022: it’s not the holding companies that are necessarily doing most of the buying or investing. Nor is it the consultancies, which picked up several agencies over the last decade — enter private equity.

PE shop money has been hunting for agencies, particularly in the performance marketing space, to either acquire or fold into other agencies in order to broaden services that are in demand from marketers today.

“As buyers get accustomed to the risk profile associated with businesses that only have digital assets, the market has just exploded. COVID really exacerbated the M&A market in the agency space,” said Amanda Dixon, co-founder of M&A firm Barney, which has over $500 million in active listings and is on pace to do between 70-100 transactions in the agency space this year. “The mindset that agencies are going to be here in a in a different way than in the past as they participate in helping brands digitally transform has just totally been exacerbated with the global pandemic.”

To wit, only two weeks ago, The Carlyle Group through the Amsterdam-based marketing services firm Dept it controls, acquired 3Q Digital. And only months before, 3Q had purchased SEO firm Inseev. Meanwhile, New Mountain Capital (which bought healthcare agency Real Chemistry), CVC Capital Partners (which bought Asian-based Blue Focus) and Next 15 (which just bought U.K.-based Engine Group) are among the other acquisitive PE firms in the last year.

What’s behind this trend? For one, there’s the appeal of performance marketing, which can generate more instant results for investors and just happens to be very hot at the moment as consumer habits drift toward e-commerce.

“There’s a lot of high growth in the digital performance marketing sector that’s driven by a lot of more data-driven, customer-acquisition and growth strategies. And through the pandemic, the acceleration of digital and acceleration of e-commerce activity has further enabled that,” said Michael Seidler, CEO of M&A firm Madison Alley. “The other thing that’s driving it [are] new video platforms like YouTube, CTV and OTT, and then even like Tik Tok and Instagram. They’re all growing — so those new platforms are presenting new opportunities” for marketers.

Even the Great Resignation has had an effect on buying agencies, added Dixon.

“People have this notion that a PE buyer coming in is going to completely decimate culture, and that it will be a miserable experience. And the reality is, we have seen way more success stories with financial buyers than not,” she explained. “The financial buyers that have decided to come in and get comfortable in this space, recognize that it’s …read more

Source:: Digiday