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The dos and don’ts of the M&A rulebook for agencies

In a tough year for most businesses, agencies have also had their share of ups and downs amid frequent lockdowns, patchy consumer demand and tighter speeding. Like many other industries, the advertising agencies are also amid consolidation. There has been a flurry of action, keeping the M&A counters buzzing.

The Drum spoke to Hattie Marsden, director, at SI Partners, Scott Spirit, chief growth officer and executive director at S4 Capital, and Vuki Vujasinovic, CEO at Sling & Stone on a mergers and acquisitions panel at The Drum’s Agency 4 Growth festival 2021. The panel discussed what buyers want from agencies and how the needs of modern brands are driving these buying trends.

Watch the full session on The Drum ‘Agencies4Growth’ Festival website.

While it has been an overall gloomy year, data points out that the M&A deal volumes in the agency sector have gone up hugely. Interestingly this growth trend has been quite binary: for the agencies that have performed well during Covid-19, there is a lot of interest and potential demand, whereas, for those that were perhaps struggling to keep growing, the interest is much less.

Hattie Marsden, director, at SI Partners, commented “It's particularly interesting for the APAC market, where some of the independent agencies tend to be smaller than in Europe or the US, where a new buyer pool has opened up and is considering the agencies even though they're smaller sized.”

One of the key things to remember for most independent agencies getting ready to traverse the M&A path is to get ready to talk about the agency to potential growth partners, or acquirers which is a very different conversation than talking to potential talent or potential clients, views Vuki Vujasinovic, CEO at Sling & Stone. Vuki Vujasinovic founded the Australian public relations firm Sling & Stone, which was acquired by VCCP recently.

The pandemic has surely changed how the deals are being actioned, evaluated, and closed - all in the post-pandemic virtual world. The flurry in the acquisition space has also brought the conversation back to the comparative performance of the larger network agencies with the smaller digital setups.

Sharing his experience of being a witness to a lot of inbound deal flow, Scott Spirit, chief growth officer and executive director at S4 Capital said, “there is too much attention being showered on the slow growth of the big players, and not enough attention being given on the fast growth of some of the smaller, more innovative players.”

A vast majority of the agencies are relatively small but growing at 20-30% over the past couple of years and are the typical ripe candidates for the deals.

A definite change in the M&A space has been around the changing face of the companies fighting out to acquire the agencies. The aggressive dealmakers are now coming from different places - beyond just the big networks like WPP or Dentsu. These include independent companies, consulting companies and even private equity companies, which is a relatively new phenomenon in the industry. Private equity paying more attention to marketing services could be the biggest, large-scale trend-shift over the past 24 months, which seemed to be the consensus of the session.

Talent is playing a very big role and is a common trait within the deals, especially in a post-pandemic world that is marked by a talent crunch in many markets. As per Hattie Marsden, director, at SI Partners, “one of the key things driving the ones that are performing well is the fact that they're managing to attract, train and retain high performing talent.”

To view the whole session, visit The Drum’s Agencies4Growth website.

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