Ad market braces for M&A surge

There’s more to come, as a few companies vie to acquire media giant Paramount, which controls CBS, several cable networks (MTV Nets and Showtime, among others) and a production studio. The most serious suitor, Skydance Media sweetened its offer last week while rival studio Sony Pictures, supported by Apollo Global Management, has backed off from its offer.   

For those who love consolidation, there’s plenty to celebrate once this cycle gains momentum. Ad tech vendors are poised to join the consolidation spree, given their struggle with slim profit margins. It’s only when they shift towards operating two-sided marketplaces that profitability truly becomes attainable.

The same holds true for data businesses, especially those that banked on Google phasing out third-party cookies, but are still waiting for that day to come. For many of these companies, getting swept up in consolidation might be their only viable option.

“The marrying together of an analytics-led agency with a strong product engineering organization is a powerful combination,” said John Castleman, CEO of digital and IT consultancy Bridgenext. “We’re starting to see brighter spots of clients starting to spend money [and] initiate projects again. Certainly we think that’ll get better as we go into 2025.”

The surge appears to be the realization that not much else can be learned about economic uncertainty – it’s certain that these are uncertain times, but perhaps not as dire as they once appeared, at least from an economic perspective. 

That’s why dealmakers are on the move, eager to scout out potential targets or seal the deal on ones they’ve already identified before competitors swoop in and steal their thunder.

As for high interest rates, those aren’t going to be changing anytime soon, so best to move now in hopes that whatever gets acquired delivers a return on the investment. This goes for everyone, including private equity investors who want to make the most of their funds before they have to hand them back over to clients.

“I think the mood is shifting from ‘wait and see’ to ‘it’s about time to do something’,” said Sanja Partalo, co-founder and CEO of S4S Ventures, which looks for investment opportunities for clients including S4 Capital and others. “The last let’s call it two years have been a very uncertain time, and nothing kills M&A like uncertainty.”

That said, holding companies are always looking to acquire new additions to product lines, continued Partalo. 

Take Common Interest, for instance – execs there are mapping out plans to snap up three businesses over the next six to nine months. 

Meanwhile, Together Group recently made moves by acquiring Californian digital agency Metalive and production studio Pixel Perfect. These additions bolster the collective of creative consultancies, technology firms, marketing agencies and production studios focused on luxury and lifestyle sectors that Together Group has been assembling.

On their own, these maneuvers might not raise many eyebrows in the M&A realm – they’re more like small-scale acquisitions, focusing on add-ons and acqui-hires rather than big-ticket deals. However, dig a little deeper into how these deals are structured, and the picture becomes clearer.

“What’s changing now is that I think the M&A teams have gotten comfortable since they have had more time to do due diligence on these companies and these management teams than they have in the past,” Partalo said. “So it will not be surprising to me if the next 18 months we start to see that thawing of the M&A market and some more chunky deals be done.” 

To wit, one of the bigger deals executed by a holdco in 2023 was Omnicom’s purchase of digital commerce firm Flywheel last October, which instantly added depth to its organic development  of commerce media prowess. 

“What M&A teams have been doing for the past two years is really sort of getting a much more sophisticated understanding of clients’ needs,” Partalo said. “Where do they have service gaps? Who are the companies that they should be talking to? They have been talking to them.”

Partalo also pointed to WPP’s purchase last year of influencer marketing agency Goat as a good example of the type of deal to expect.

In fact, influencer agencies that deal more with the mar-tech and data sides of the influencer/creator business (more so than the creative sides) could very well make up a whole category of acquisition targets given the heat on the space at the moment. 

When it comes to deals in this area, or anywhere else in the market for that matter, they’re probably going to kick off in the U.S. before making their way over to the U.K. and Europe as a whole. 

While many countries are still grappling with the economic fallout of the pandemic, the U.S. has bounced back with remarkable resilience. And it looks set to stay strong for the remainder of the year. In fact, financial giant UBS has raised its year-end target for the 500 largest companies listed on U.S. stock exchanges. 

Forecasts like this are like catnip for dealmakers. 

“Companies started to come out in the first quarter in the U.S., meaning that the first round bids for a lot of them will happen over May and June,” said Bruce Biegel, senior managing partner at Winterberry Group. “There’s kind of a natural cadence to this, which means we’ll start to see more deals announced in June and then continue throughout the summer.”

In Europe, however, the market is displaying more caution. Dealmakers are waiting to see who will make the first move and what the structure of those deals will be before taking action. It’s a classic chicken-and-egg situation. And yet, this tentative stance can’t last forever, and all indications suggest that things will pick up towards the end of the year. Especially if dealmakers start to smell a rate cut coming. 

“The indecision from Google over cookie deprivation is making a lot of people [in Europe] nervous to the point where you’re getting some of them to decide they’re not going to let the issue dictate their product roadmap and advance on with their own plans,” said Andrew Buckman, vp of marketing and investor relations at Azerion. “Once there’s a tipping point with these sorts of companies there may be more investment interest in those sorts of companies.”

No matter what unfolds on either side of the Atlantic, anticipate the usual suspects getting caught up in the rumor mill. Keep an eye on names like Equativ, Seedtag, MiQ, Common Interest and MGi. Even influencer-related firms like CreatorIQ and Captiv8 are ripe, given the heat around influencer marketing. These companies span the areas where most observers anticipate a surge in deals – agencies, data, and ad tech.

So when will these promising signs translate into a full-blown recovery in dealmaking? Well, as usual, it hinges on the Fed’s rate-cutting agenda and the resurgence of leverage buyouts. Currently, the smart money is betting on the second half of the summer and beyond.

“Because there haven’t been many deals, investment banks have been revenue starved so they’re prepping up to make sure they get their share of what comes back,” said Charles Ping, managing director at Winterberry Group.

“On the other hand, there’s private equity, which has an embarrassing amount of money to spend alongside vehicles that they need to take to market when the market is right – most likely at the tail end of this year.”