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How outside investors are taking on the marcomms giants when it comes to acquisitions

Partners at Green Square, Corporate Finance Advisors to the media and marketing sector, cast their eyes over the latest industry deals and look ahead to the next tranche of acquisitions.

Earlier this week the London Evening Standard ran an interesting comment piece which bemoaned the lack of M&A deals in Europe and North America (mega tech buyouts by the likes of Google and Facebook excepted, of course) – particularly compared to the lively M&A scene in Asia-Pacific.

There was a grain of truth in that piece, but any reader of The Drum or Green Square’s own Deal Monitor will know that in the marketing communications business, deal-making is what it’s always been – brisk and full of surprises.

This past week, coming hot on the heels of Facebook’s $19bn swoop for WhatsApp, we had what I think is an interesting deal by, of all people, Lloyds Bank; or rather, Lloyds Development Capital – LDC – the bank’s private equity investment arm. Last year it invested over £400m in 22 different deals, so it’s a big player. It also has a history of investing in home-grown firms, which is good news for the UK creative economy.

LDC took a big chunk of equity (the amount was undisclosed, unfortunately) in Imagine Nation, a content business set up in 2012 by a couple of media veterans – Kees Abrahams (ex Sony Television and Who wants To Be A Millionaire? owner 2waytraffic) and Robin de Levita, a highly-rated theatre director.

LDC are investing in a very interesting business. Imagine Nation specialises in “immersive theatre” (it already has acclaimed productions playing in purpose-built theatres in Europe) and has stated that it wants to move into immersive live experiences generally. If a way can be found to get brands involved without disrupting the experience for paying punters (perhaps through sponsorship or branded content), this could become an extraordinarily powerful advertising and marketing medium. And Imagine Nation seem to have first mover advantage.

The point is, deals don’t have to be done by tech giants like Facebook or Google, or marcomms colossi like WPP and Dentsu. And when an institution like LDC, which comes from “outside” our own bubble, and which by some might be viewed as a cautious or conservative investor, starts taking an interest in the sector, it can only be seen as a big vote of confidence.

It’s also a reassuring stamp of approval on creative businesses. Investors are beginning to realise that creativity and marketing can make money. Big money. Only yesterday (Thursday), Sir Martin Sorrell – perhaps adland’s most astute investor – announced WPP’s preliminary results for 2013.

They made for impressive reading – overall revenues were £11.02bn, up 6.2 per cent year on year and led by strong growth in Asia Pacific, Latin America, Africa and the Middle East and, perhaps most gratifyingly, the UK. The UK is often dismissed as a “mature” market in marcomms, but revenues here climbed by 11 per cent.

Overall, WPP’s pre-tax profits of £1.3bn, were up almost 19 per cent year on year. This suggests to me that the strategy of acquiring digital and “new media” businesses and shops in emerging markets is paying off.

Since IPG’s buyout of Profero earlier this year, the number of independent digital agencies of real size is dwindling, but there are still plenty of smaller fish to catch.

Indeed, as money becomes slightly easier to come by, and the pressures on consumer spending ease up a bit, more and more agency mavens will strike out on their own; which in turn will provide more food for hungry big fish looking to acquire hotshops, which will then encourage more start-ups… This is the perfect example of an economic virtuous circle.

However, it looks as though the holding groups will have competition on their hands, as investors from outside of the industry size up the opportunities on offer. This increased interest may well drive up prices – although not to the hugely inflated heights of some US digital valuations.

It’s interesting – the diversity of acquirers so far this year is perhaps the richest I’ve ever seen. Aside from the usual acquirers like WPP, we’ve also seen deals concluded by the likes of YouGov, Norwegian data giant Confirmit, publisher Future, comparison site, and now LDC – and there are many others we’d never have considered when we first started the M&A blog here on The Drum back in 2012. Expect to see more of this as 2014 progresses.

Barry Dudley is a partner at Green Square, corporate finance advisors to the media and marketing sector.