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Will 2008 see an M&A bust or boom?

According to Petsky Prunier LLC’s annual review, the number of M&A-related transactions in the market­ing sector rose by nearly 63% in 2007, compared to the amount in 2006. In the past few weeks, InfoUSA picked up Direct Media, ALC closed on its acqui­sition of MKTG Services’ List Manage­ment Division and Harte-Hanks grew its European footprint by acquiring UK-based Mason-Zimbler.

But can this M&A boom continue throughout 2008? News of successful acquisitions have been countered by reports of failed deals, such as Black­stone Group backing from its acquisi­tion of Alliance Data Services. Coupled with the nationwide credit crunch, such circumstances could make buyers wary and affect company performance.

Many in the industry agree that financial straits could prove a challenge for new deals. Reed Phillips, managing partner at DeSilva & Phillips LLC points out that private equity buyers — big players in recent acquisition news — may be less aggressive with the economic downturn.

David Williams, president and CEO of Merkle, agrees that the volume of deals will soon decline. “Because of the overall economic environment,” he says, “I think we will see less activity on Wall Street.”

He adds, however, that companies that are not doing well in the public sector may actually find it beneficial to go private.

Richard Howe, CMO of Acxiom — itself a veteran of failed buyout attempts — says that in some cases, poor perfor­mance might lead to M&A. “[Performance in the industry] has not been exception­ally great, and financials might cause that barrier — though one might argue that that’s why companies come together in many cases.”

Howe also points out that a merger or acquisition could push a company towards critical mass — better positioning it to compete with organizations providing similar technologies.

While economics present a concern for M&As in the future, many insisted that the threat was small, and would not necessar­ily stand in the way of a deal. However, another possible stumbling block for M&A may, ironically, be its own momentum.

Leon Henry of Leon Henry Inc. says, “I think it’s going to slow down because, basically, a lot of the cream has been picked off.”

Particularly at the mid-market level, many of the star players seem to have already been swallowed up. For smaller companies, however, there remains a high chance of being involved in a merger or acquisition in the near future.

Because of deals that have created list and database behemoths in the market­place, coupled with economic pressures, Williams foresees continued consolidation for small shops. “I think it’s increasingly difficult for a 50- or 100-person company to compete in both the list and database worlds,” he explains.

Kevin Dean, VP of Equifax product management, has another positive, take on the state of small companies. He says, “Today, there is a handful of large players but many more boutique shops. It’s the boutique shops that are doing some inter­esting deployments and catching the atten­tion of the marketplace. Based on these trends, we’ll see continued deals, if not an increase in deals, in 2008.” Due to postal increases and the state of the marketplace, Dean adds, more companies realize that they must focus on retention and database upkeep, rather than acquisition.

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