Market overview
Download PDF
Appetite for digital marketing businesses remains buoyant, with 311 acquisitions from 2021 to date. Buyers are capitalising on the opportunity to target a global internet user base that now exceeds 5bn. With 78% of marketing now digital and 60% of businesses projected to increase their digital spend, the medium-term growth trend remains intact.
60% of businesses to increase their digital spend
Automation is starting to revolutionise digital agency business models, with technology driving significant margin improvement. Many agencies in the influencer and search marketing spaces can now achieve profit margins of 30%+, alongside more customer contracts. Such attractive financial profiles have brought many new investors to the sector.
Spotlight on specialist capabilities
Specialist capability is hard to develop organically, exacerbated by an acute talent shortage. With an increase in channels leading to added complexity for many in-house marketing departments, agencies that are sector specialists and often use technology to differentiate their proposition, are prime acquisition targets.
Influencer marketing
With 4.6bn social media users, marketing budgets are finally starting to follow the eyeballs
Influencer marketing was once dismissed as a fad, but with over 4.6bn social media users and an increasing cynicism towards mainstream media, agencies that provide algorithm led campaigns are in demand. Often driven by ambitious entrepreneurs who are more social media savvy, large global blue-chip clients are turning to specialist agencies, to access niche market segments.
Labelium acquired 1,000 heads in a deal worth over $100m in 2022, after less than a three-year hold by its private equity investor Phoenix. WPP acquired US based Village Marketing, to bolster its capability in the space. Meanwhile, Inflexion-backed Goat experienced over 80% revenue growth last year alone.
E-commerce enablement
With the growth of new e-commerce platforms from vendors such as Shopify, Big Commerce and Magento; acquirers have focused on agencies with the ability to build and manage online stores. Bridgepoint-backed IDHL acquired Shopify plus agency Statemen, whilst WPP bought Cloud Commerce Agency.
With a recognition that winning the contract for website development opens the door to cross-sell other services such as SEO and PPC, further consolidation is expected as these software platforms continue to mature.
B2B specialists
B2B agencies have historically struggled to be as enticing to new talent as their B2C counterparts. Through an increased recognition of this specialised skillset and enviable long-term contracts with blue-chip clients, private equity has turned its focus to the segment. Horizon invested in The Marketing Practice, whilst Elysian acquired Gravity Global.
