Demand exceeds supply in recovering M&A market

There is a pent-up buyer demand for merger and acquisitions activity in the marketing communications industry, with fewer sellers than buyers on the market, according to the latest survey by WKS Results.

Mandy Merron

There is a pent-up buyer demand for merger and acquisitions activity in the marketing communications industry, with fewer sellers than buyers on the market, according to the latest survey by WKS Results.

The proportion of businesses in the sector looking to make an acquisition has risen from a quarter in the 2004 survey to two-fifths this year. Despite this, fewer than one in 20 companies actually expects to be acquired.

WKS Results – a joint venture between consulting group Results and creative business advisor Willott Kingston Smith – questions more than 80 senior executives from across the marketing communications industry for its annual M&A Survey of Opinion. The survey includes design consultancies, Web and interactive groups and marketing consultancies.

This year’s report claims that a degree of confidence has returned to the sector. ‘Confidence is gradually creeping back up in the sector and consultancies are looking for ways to maximise their margins,’ explains Willott Kingston Smith partner Amanda Merron.

Twenty per cent of respondents to the survey operate primarily in the design and corporate identity sector, while a further six per cent claimed to be considering entering this sector for the first time through acquisition. A further 5 per cent are considering expanding their existing presence in the design sector.

But it is in the interactive sector where the most activity is anticipated. An increase in M&A deals is expected by 39 per cent of interactive companies and it is in this industry that the highest proportion of respondents – at 11 per cent – are considering expanding their operations.

According to Results senior consultant Tony Bond, clients are beginning to deliver on promised budgets, setting up a circle of confidence between consultancies and clients. ‘Design businesses in particular find it hard to have distant [financial] horizons. When work is project-based it may be hard to see even beyond three months,’ says Bond. ‘Design and PR were perhaps hurt most by the downturn of the past two or three years and so are the latest [sectors] into the upturn, but they are coming back now and we would expect M&A deals this year.’

Consultancies that may have been ready to buy or sell two years ago were forced to wait in the weakened markets, but the findings suggest they may now be able to instigate deals in the stronger current climate. As client spend continues to firm up, profitability is beginning to return to consultancy balance sheets.

Despite the apparent reticence of sellers to place themselves on the market, the enthusiasm for M&A activity is beginning to balance between buyers and sellers. The survey finds that 51 per cent of sellers are ‘enthusiastic’ about deal activity, compared to 63 per cent of buyers. In the previous survey, only 24 per cent of sellers said they would act immediately on a deal, compared to 61 per cent of buyers.

For public companies, growth by acquisition, rather than organic growth, is the only way to satisfy shareholder demand quickly enough, according to Bond. This shareholder demand for growth is likely to drive M&A deals as the market strengthens.

The valuation of companies going up for sale is also beginning to align: sellers are expecting a multiple of seven times their pre-tax profits, while buyers expect to pay around five times pre-tax figures. The spread has narrowed from previous years, perhaps indicating a move toward a more mutual understanding of the parameters of ‘normal’ M&A transactions, according to the report.

‘Sellers have always used a higher pre-tax multiple than buyers, but it is interesting that this spread is narrowing as both parties are becoming more realistic on the back of the recent downturn,’ says Merron.



Direct marketing38%

Public relations34%

Database marketing33%

Specialist advertising29%


Growing critical mass in existing sector47%

Improving operational margins47%

Securing additional skills and services39%

Retirement/exit strategy37%

Interactive requirement39%

Direct marketing requirement38%

Public relations requirement34%

Database marketing requirement33%

Specialist advertising requirement29%

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