Hope remains for marketing M&A

While 2007 was a record year for M&A in most business sectors, including direct marketing services, a different picture has emerged in 2008. The collapse of financial institutions, commodity price volatility and economic uncertainty across the globe have made it challenging to complete transactions in industries, including direct marketing.

Our research shows that deal activity is down among service providers to direct marketers by 40% for the first nine months of 2008, compared with the same period in 2007. There are a number of reasons for this.

First, results have deteriorated for targets. While marketing spending continues to migrate to DM from other mass media tactics, most of the optimistic early-year forecasts for DM expenditure growth won’t be met, given economic weakness and increased financial strain on key DM customer segments such as financial services and travel/hospitality.

Also, financial buyers have significantly reduced their activity in DM services compa­nies, and increased paper prices and changes to the US Postal Service rate structures have added cost to direct mail pieces.

Offsetting some of these factors are positive trends. Foreign strategic acquirers remain active, and the relative weakness of the US dollar has emboldened international acquir­ers to seek US companies. With market valuations down, stronger players will use the opportunity to grow their capabilities or geographic reach via acquisitions.

And, in an economy where demonstrable ROI metrics are critical to direct marketers, companies with proprietary data sets, unique analytics and strong tracking capabilities con­tinue to be coveted by acquirers. We expect to see traditional DM providers acquiring technology-based expertise via acquisition in the areas of mobile marketing and social networking, among others.

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