Survey Predicts Healthy M&A Among Internet, Other Marketing Firms in 2006

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A new survey by investment bank AdMedia Partners claims merger and acquisition activity for Internet marketing firms will be strong this year.


The New York firm also sees M&A activity in experiential marketing firms, particularly those offering word of mouth, viral, guerilla and event marketing services. Sales of database marketing and customer relationship marketing firms will be strong, too.


"A lot of this confirms what we intuitively believe in: It's a very good year," said Seth Alpert, managing director of AdMedia. "In a broad sense, among potential sellers, this is a good time to go to market."


Alpert should know. In the past seven months, his bank represented sellers like Medical Broadcasting Co. (to Digitas), Procter & Gamble Co. interactive shop Bridge Worldwide (to Wunderman), search firm 360i (to Innovation Interactive), Dynamic Logic (to Millward Brown) and Gruner + Jahr USA's Inc. and Fast Company magazines (to Mansueto Ventures LLC).


Of those identified in this AdMedia survey as potential buyers, 54 percent expect to close an acquisition this year, up from 51 percent in 2005. Also, 42 percent of those who identified themselves as prospective sellers expect to sell all or part of their businesses this year, up sharply from 25 percent in 2005.


AdMedia anticipates moderate to strong M&A activity in database marketing and CRM, marketing and strategic consulting, specialist advertising, direct marketing, media buying services, corporate identity, design, sales promotions and public relations.


The only marketing area where the bank said 55 percent of respondents expected weak deal-making activity was general advertising. This is in line with trends where advertisers are looking for more measured responses to their marketing outreach.


This is marketing and media specialist AdMedia's 12th annual survey. "Merger and Acquisition Prospects for Marketing Services and Internet Marketing Firms" is available at www.admediapartners.com.


The survey mailing went to 3,200 names. Fifty-two percent of respondents were in marketing services firms, 30 percent in Internet marketing companies, 26 percent at ad agencies and 9 percent in holding corporations, with overlap occurring in these fields. Eighty-nine percent of those firms were privately held.


According to the survey, 69 percent claim they are considering entering or expanding their presence this year in Internet marketing, up from 64 percent in 2005.


Interestingly, 46 percent aim to grow in experiential marketing, a sector that replaced event marketing in this year's survey. AdMedia said only 28 percent claimed they were thinking of entering or expanding in event marketing last year.


Most of the early years of this decade were favorable to buyers. But this is the first year that 52 percent would advise sellers to take advantage of healthy valuations and available financing.


Valuation multiples that respondents expect for marketing services firms grew to six to seven times pretax profit this year from five to seven last year. Internet marketing firms, in particular, expect multiples of six to 10 times, up from five to seven last year.


On the other hand, valuation multiple expectations for general ad agencies are expected to hold steady this year at 2005's five to six times pretax profit.


Alpert sees opportunity in the high middle market, especially with companies generating annual revenue of $20 million to $100 million and profit margins of 20 percent or more.


"Traditional direct marketing remains an area of interest to marketing," he said. "Not printers, but guys who would add value and do creative and campaigns. Analytics is constantly in demand, and online direct marketing in all forms that you can imagine is tremendously important."


Mickey Alam Khan covers Internet marketing campaigns and e-commerce, agency news as well as circulation for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters


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