Earlier this year, I posted about M&A in the Advertising & Marketing sector. The outlook was pretty optimistic, despite the Brexit uncertainty that dominated the headlines at the time. Fast forward a few months and the ‘B’ word has been replaced by the ‘C’ word and the effects of the pandemic have been felt by economies worldwide.
In their review of Q1 2020, Moore Kingston Smith consider the impact coronavirus has had so far on M&A in the marketing and media sectors and what the future may bring.
Unsurprisingly, the number of deals has fallen dramatically (43% down on the same period last year), whilst businesses turn their attention inwards to plan their own route through this turbulent time. Of the transactions that did complete, half involved an overseas player, probably a sign of the weakness of Sterling.
The deals that have occurred have continued to follow trends we have noted previously, albeit on a smaller scale. Digital agencies remain a popular choice for acquirers, something that is unlikely to change as Covid-19 forces the population to adapt to an increasingly online existence. The networks continue to make strategic acquisitions, as do the consulting firms. The rate of private equity investment in the sector continues to grow, making up 45% of deals in the first quarter.
In terms of the outlook, the report expects that transactions will continue to occur on a reduced basis in varying forms (whether they be investments, acquisitions, mergers or rescue deals), but rightly notes that what happens next is entirely dependent on the virus itself and how it is contained.
Transactions in this sector tend to be valued based on the performance of the target in the financial period preceding completion and the 12-24 months following completion and we expect that this may also have a depressing effect on deal flow, particularly if we are heading into a prolonged economic crisis.
On that note, its also worth looking at my colleague Karish Andrews' blog about the impact of Covid-19 on existing earn-out deals.
If you'd like to see the full Moore Kingston Smith report, please click on the link below.
"Companies that have a great track record, great client base, great people and great culture who have, through no fault of their own, seen their income decimated, will look for a safe harbour and merge with or be acquired by a company with a stronger balance sheet." Moore Kingston Smith
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