Agency restructuring and economic fears drive down 2019 M&A activity

M&A activity last year totaled $27.7bn, compared to $32.6bn in 2018

The marketing services industry saw mergers and acquisitions (M&A) decline by nearly $5bn in 2019 thanks to global trade tensions and agency restructuring.

According to consulting firm R3, global M&A deals totaled $27.7bn last year. North American companies were the biggest spenders at $19.9bn, but trade worries and regulatory scrutiny curtailed investment in foreign markets such as China and Asia Pacific.

“Buyers have been looking at investments that will strengthen their position in an uncertain geopolitical climate,” said Greg Paull, principal at R3. “Though martech and adtech have driven M&A value, there has been more interest in acquisitions that will increase regional presence and serviceability.”

Holding companies cut their number of acquisitions by more than half compared to 2018, though total spend on M&A remained consistent.

Publicis Groupe, headlined by its $3.95bn acquisition of Epsilon, was the top holdco spender last year at over $4.1bn. Dentsu Aegis Network struck the most deals at 12.

“Restructuring has shifted attention away from volume and forced holding companies to attend to integration,” said Paull. “It’s been about what’s going to help win new business.”

Last year did bring in a new class of buyers. Publicis and Dentsu were the only major holding companies to rank on R3’s list of top 10 spenders, sitting at the one and five spots, respectively. Bain Capital, Accenture and Blackstone rounded out the top five.

Private equity accounted for 44% of global M&A activity, totaling $6.6bn. Of note, Bain Capital purchased a majority of Kantar, and Blackstone bought Vungle.

“The ‘buy and build’ strategy of cash-rich PE-backed agencies over the past few years has kept the M&A landscape buzzing,” Paull said. “We expect to see continued PE investment in marketing services in the new year, though transactions are likely to be more modest.”

M&A activity in EMEA increased by roughly 14% in 2019 despite concerns of how Brexit may impact the region. Deal activity in China decreased by 54%, making it the country’s slowest M&A year of the decade.

Investment in APAC slowed by 9%, though Paull said the region “remains of interest to buyers wanting to address marketplace complexity” in the region.

While most acquisition targets were martech and adtech companies, 2019 saw double-digit growth in both the number of transactions and overall value for production houses and CRM companies.

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