Year-End Surge in M&A Activity: Trends and Predictions
As we predicted, there’s been a notable uptick in M&A activity as we head towards the end of year. And we and our peers still have plenty more to do before we can start thinking about downing tools for Christmas parties.
The recent refinancing of Croud with ECI is a vital proof-point for the PE community, giving it much-needed confidence in future exit options, which will in turn lead to the deployment of more capital in the agency space.
Challenges in Agency Client Spend and Market Sentiment
But it hasn’t all been smooth sailing. Client spend across agency disciplines continues to be patchy and unpredictable for many, with contract negotiations and budget sign-offs providing a frequent source of delay and frustration. Brand spend is very closely linked to market sentiment, so this is a side-effect of the political and economic turbulence we’ve seen over the last year or so.
Increased Due Diligence in Cautious M&A Markets
And whilst there is still plenty of M&A demand, we’ve also sensed more caution from buyers and investors, resulting in longer and more intense due diligence. Part of that caution for PE buyers comes from the observation that some buy & build plans of the last few years might have been a little hasty, forcing their PE backers and management shareholders to rethink their exit strategies & timelines.
In the UK, frantic speculation on Capital Gains Tax has also had an impact, with many sellers who were unable to meet the Budget deadline delaying sale decisions until they had more certainty of the tax implications. So although we expect Q4 to show a positive uplift on last year, it might not quite reach its full potential.
But despite pain for employers and shareholders in the UK Budget, there was some relief that the CGT increase was deliberately pitched at a level designed to avoid behaviour change. That bodes well for M&A, although the impact of Employers’ NI on profit margins is less helpful, and it remains to be seen whether the UK’s increasing Tax to GDP ratio will act as a brake on growth more generally.
Agency Holding Companies Reshaping for 2025 and Beyond
2025 might presage another shift in the M&A landscape: most of the agency holding companies have been busy unwinding legacy structures to adapt to modern client demand. Reducing their reliance on creative skills, enhancing data and AI capabilities and crucially, combining media with commerce.
That’s already resulted in significant deals such as Omnicom and Flywheel, Publicis and Mars. And it has implications across the entire marketing spectrum, including brand, product, distribution, fulfilment, CRM, search, social, analytics, influencer and media.
But this repositioning might also result in some significant disposals, and for PE funds in search of assets of scale, the prospect of lower interest rates means that the financing required for bigger deals like this could soon be back on the table.
Momentum for 2024 and the Outlook for Global M&A
In any case, we predict that the momentum from 2024 will continue and accelerate well into the New Year, with more of a balance between seller supply and buyer demand – really for the first time since 2022.
Markets like certainty, and with elections now settled and the prospect of less regulation and lower taxes in the US, we’re likely to see a surge of M&A wash across global markets next year. Whether that can be sustained with the prospect of new inflationary pressures rearing their heads, remains to be seen.
For more detail on M&A trends across agencies, consultancies and tech service providers, download SI Partners’ latest Global M&A Insights 2024 report.
