In Q1 19, the marketing sector M&A activity grew 4% compared to Q4 18 which was a record quarter, and 35% compared to Q1 18. This growth is increasingly driven by technology enabled companies. Of the 391 transactions completed in Q1 this year, 41% (162 deals) were in the marketing and advertising technology space (versus 34% in Q4 18).
229 deals this quarter were in marketing services; they represent a minor 8% decrease on the previous quarter but a 22% increase on the same period last year. By comparison, martech/adtech deals in Q1 were 28% higher than in Q4 2018 and 56% higher than a year ago.
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Marketing is increasingly a tech-enabled sector. As the gap between marketing and sales continues to narrow, we have restructured our marketing sector M&A and trends report to better reflect the evolution of the industry. In addition to an analysis of all recorded marketing services transactions, our report now includes all global deals in martech* and adtech**.
Private equity firms have been active in acquiring marketing services businesses in previous quarters. The inclusion of marketing and advertising technology companies has led to an increase in the number of PE backed deals reported, with 88 deals in Q1– 23% of the total volume. Private equity activity has been driven by build-up strategies as illustrated by the acquisition of US listed data analytics software company Attunity by Qlik Technologies (backed by Thoma Bravo) for $560 million. This deal was one of the largest disclosed deals this quarter and follows Qlik’s acquisition of Crunch Data in January.
Of the eight most active buyers in Q1, four were private equity and four were strategic. Alpine SG, a portfolio company of Alpine Investor was the most active buyer—by number of deals—in Q1 2019 merging no less than six martech businesses into a newly created dedicated entity “ASG MarTech”. It was followed by Dentsu with five acquisitions, all within the advertising services space. The only holding company to make the top buyers list this quarter – the first time Results’ quarterly M&A has seen only one holding company make it onto its top buyers list.
Partner Julie Langley comments: “Marketing Technology activity is very much on the rise; the strong revenue visibility and high gross margins that characterise these companies makes them particularly attractive to both financial investors and strategic buyers. The gap between the number of marketing services and technology deals is likely to continue to narrow in the future.”
Within marketing services, integrated/full-service agencies and UX/design continue to constitute the majority of targets, collectively representing 53 transactions or 55% of advertising services activity. Integrated offerings with a full-funnel proposition and the ability to build and activate experiences at scale continue to be attractive to acquirers. A few examples of this include the acquisition of UK based JJ Marketing by Gravity Global and the acquisition of in-house agency Oliver by mid-market holding group You & Mr Jones in January. This deal further illustrates the need for agile and multi-disciplinary teams working on client premises.
The analysis also shows that Accenture, which made three acquisitions in March and a further two in the first week of April, continues to lead the consultancy pack when it comes to M&A activity in the sector. Its recent acquisition of Droga5 follows three smaller acquisitions in March -?What If!, Hjatelin Stahl and Storm Digital – the last two based in the Nordics. Because of its profile and client roster Droga5 was going to be a big prize whoever the buyer. Accenture has been openly pursuing a strategy of building a stronger creative capability in recent years and this deal makes perfect sense. Accenture’s Nordic deals also highlight its continuing eagerness to acquire talent and expand its footprint regionally. The acquisition of Spanish creative agency Shackleton last week is yet more evidence of this.
North America was the most active region in Q1 2019 with 175 deals. It was followed by Western Europe, accounting for 24% of all deals this quarter. The UK is still seeing a significant amount of activity with 47 companies acquired. This is a slight decrease on the last quarter but an 81% increase on the same time last year, mainly driven by the rise in technology deals.
Nearly half (48%, 76 deals) of the technology transactions in Q1 were acquisitions of marketing software companies. These were driven by, on the one hand, the growth in marketing automation, identity, and visualisation tools (collectively 33 transactions), which suggests that single customer view and marketing orchestration are the main obstacles to marketing success; and, on the other hand, by 27 transactions in content and social marketing, highlighting the continued blurred lines between content (including user generated) and marketing.
The first quarter even saw left-field buyers acquiring personalisation and omnichannel marketing capabilities, such as McDonald’s acquisition of Dynamic Yield for $300 million in an effort to build an ‘Amazon-style personalised online experience’.
Although marketing continues to deliver on the promise of getting more products off the shelf, the ‘zeitgeist capabilities’ are identity resolution and the ability to build upon it to activate omnichannel experiences as a service.
* Martech defined as sales & marketing technologies, ecommerce technologies, websites creation & optimization.
** Adtech (defined as search and advertising technologies).