According to a survey released today by M&A firm AdMedia Partners, an overwhelming majority (80 percent) of senior executives at leading marketing services, media and related technology companies believe mergers and acquisitions by strategic buyers in the industry will rise in the coming year.

The overall outlook on M&A is optimistic, with meaningful interest on the part of sellers and companies looking for growth capital. At the same time, the survey found that sectors associated with industry change and disruption tend to command the most interest as areas for expansion and acquisition. The four sectors of greatest interest are analytics, social marketing, digital agencies and mobile marketing.

"Most of our respondents feel that this will be a good year for both buyers and sellers, reflecting a general sentiment that media and marketing related M&A activity in 2014 will be stronger than in 2013," said Seth Alpert, Managing Director at AdMedia Partners, who went on to say "that's consistent with our own outlook for the year based on activity that we are seeing in the market."

Continued Growth Expected for Strategic and Financial M&A

Executives signaled an overall sense of optimism in the advertising, marketing services and media industries, and a corresponding healthy M&A environment heading into 2014.

  • Most respondents (80%) expect growth in acquisitions by strategic buyers, in line with the result from last year.
  • Expectations that M&A activity by financial buyers will grow are also strong, a result similar to last year (49% for 2014 versus 46% for 2013).

2013 was a Busy Year for M&A

Consistent with the continued positive expectations for M&A, 69% of respondents were approached by a buyer in 2013. Findings include:

  • Approaches by financial buyers showed the greatest growth (39% in 2013 vs. 26% in 2012), reflecting the growing number of private equity firms interested in these sectors.
  • The percentage of approaches by strategic buyers in 2013 was 56%, in line with the prior year.

Good Times Ahead for Both Sellers and Buyers

The survey also found that respondents were positively inclined to advise both buyers and sellers to act now. The wisdom of whether to sell or buy has been steadily converging over time, signaling that 2014 is an equally good time for buyers and sellers to act compared to previous years. Specifically:

  • For buyers, 74% advise acting now, up slightly from last year, but down significantly from the peak registered in the 2010 survey by AdMedia Partners (92%). For sellers, 58% advise acting now, the highest level since the 2008 survey.
  • Since the M&A firm's post-Lehman 2010 survey when the number of respondents advising buyers to act peaked at 92% and only 32% advised sellers to act--indicating a buyer's market in a weaker economy--the difference has steadily narrowed, a result of the much stronger current M&A environment.

Strong Interest Remains in "Hot" Areas, with Some Exceptions

Among the results:

  • Analytics, social marketing, digital agencies and mobile marketing remained the top areas of interest for expansion or acquisition by respondents. The sectors in which there is lesser interest tend to be more established service offerings, in which many buyers already have a foothold.
  • The notable exceptions are ad tech and ad networks, which are becoming relatively crowded sectors with a narrow group of standout companies; presumably buyers are waiting for a shakeout before embarking on M&A in these sectors.

Optimism on Valuations

The weighted averages for expected EBITDA multiples by sector fall within a tight range and do not entirely correlate with the level of interest in those sectors. Insights include:

  • The highest multiple sectors are analytics, social, digital agencies, mobile and ad tech, with average weighted multiples of 8.0-8.5x, and approximately one-quarter of respondents saying 9x or greater.
  • Surprisingly, ad tech companies command lower interest yet strong multiples. We believe that the lesson here is that certain ad tech companies have extraordinary value to a handful of parties that are competing for dominance in particular areas, but beyond those buyers there is more limited interest.

Ad Growth Will Remain Low; However, Expectations for Digital Sector Growth Are Much Higher

Compared to a to a median expected growth rate for advertising as a whole at 3 percent, the most ad dollars are expected to migrate towards mobile. Findings include:

  • Mobile ad spending is expected to grow substantially in the coming year: nearly half of respondents (46%) say they expect to see an increase of at least 20% and three quarters (74%) expect this category to grow over 15%.
  • Video ad spending is also expected to show strong growth, with 50% of respondents anticipating 15% or more.
  • Expectations for other ad categories are more muted, not surprising since these sectors tend to be more mature. Nonetheless, almost half of respondents still expect interactive advertising to grow at a healthy 10-15% rate.

For more information on the viewpoints of buyers and sellers regarding 2014 valuations, advertising spending, M&A activity, and disruptive industry trends download and read the complete survey at http://www.admediapartners.com/research_and_commentary/industry_surveys/index.html.

About AdMedia Partners:

Founded in 1990, AdMedia is a leading M&A advisory firm serving the marketing services, advertising, marketing technology, media and information sectors. AdMedia has completed over 180 transactions for clients valued in excess of $8 billion since 1999. For more information about AdMedia Partners, please visit www.admediapartners.com.

AdMedia Partners
Seth Alpert, 212-759-1870
Managing Director
salpert@admediapartners.com