Software firms a hot ticket in digital marketing sector M&A

20 August 2019 3 min. read
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Agency M&A is down, while digital software M&A is up as wide range of buyers seek out digital solutions for higher returns, according to Hampleton Partners’ H1 2019 reports on ecommerce and digital marketing M&A.

Deal volume in the digital marketing sector remained stable in the first half of 2019, maintaining the trend since 2011. However, marketing application software received more M&A activity, with 95 deals at a disclosed value of $2.06 billion, while digital agencies & marketing services providers saw decreased attention.

Agency activity fell from more than 90 deals in H2 2018 to 67 deals in H1 2019, valued at $1.4 billion. According to Hampleton Partners, a consultancy focused on technology sector corporate finance and M&A, agency deals fell as media groups curbed their acquisition rate amid competition from consultancies like Accenture and Deloitte.

“2019 has begun with a total rebalance of the deal mix: agency M&A is down, while digital marketing software M&A is up,” Ralph Hübner, sector principal, Hampleton Partners, said. “Where agencies are concerned, today’s acquirers are just as likely to be IT consultancies or corporates as they are media networks.”

Total number of Digital Marketing M&A deals, 2011-present

The top two acquirers in the first half were Accenture and Denstu Aegis, with four deals apiece. The Big Four media agencies of WPP, Omnicom, IPG, and Publicis made no acquisitions in H1 2019. WPP is, however, in the process of offloading its market research and consulting arm Kantar to Bain Capital for the expected sum of $3.1 billion – part of which will be used to pay off debt.

The most important digital marketing deals were in the software subsector, according to the report. Human resources consultancy Willis Towers Watson purchased Tranzact, a transportation spend management software firm, for $1.2 billion in the largest deal of the year thus far. McDonald’s, meanwhile, bought personalization platform Dynamic Yield for $325 million.

“Marketing software providers are caught up in a new hype cycle which includes buyers from a range of sectors,” Hübner explained.

The Hampleton report also noted the growing popularity of ecommerce platforms, based on spectacular stock market performance for companies like Alibaba and Etsy. The first half saw Pinterest, Revolve, and Jumia rank in the top 10 most successful venture capital exits in 2019. Etsy, meanwhile, acquired vintage music gear marketplace Reverb for $275 million in July.

The rising importance of social commerce – the promotion and sale of products through social media – is driving more legacy brands to acquire firms that use social media to penetrate niche markets. In this vein, Edgewell Personal Care bought razor startup Harry’s for $1.4 billion.

Agencies, meanwhile, are left in a precarious position because of market intrusion and rapid technological advances. “[Agencies] need their own tech or unique skillset in areas such as CRM, big data, social commerce, or retail media to avoid being sandwiched between nearshored competitors or the client’s in-housing of marketing and advertising,” said Hübner.