Executives in marketing communications are no more optimistic about the economy than their peers in other sectors. But they're decidedly bullish, still, about doing deals.
Six out of 10, in fact, expect to be involved in M&A this year. And that represents only a modest decline from the 67% who anticipated being a buyer or a seller a year ago, according to a report from boutique advisory firm AdMedia Partners Inc.
Continue reading below
The finding represents a consensus of 3,700 advertising, marketing services and online marketing executives, as well as select financial sponsors, recently interviewed by AdMedia Partners. These same respondents expect a 5% decline in total advertising spend, compared with a 5% increase in interactive advertising spend. They also foresee 5% growth for their own businesses.
Seth Alpert, the AdMedia managing director who oversaw the investment bank's 15th annual survey entitled "The Merger and Acquisition Prospects for Marketing Services and Internet Marketing Firms," acknowledges a disconnect between the recession and the confidence of respondents to cut deals in the thick of it. But the recession will create its own opportunities, he says, for dealmakers to "weather the downturn and be positioned for strong growth once the economy picks up."
Deals that do get done will often be helped by lower valuations. While respondents expect the take-out multiple for traditional ad agencies to hold steady this year at 5 times Ebit, they see the multiple falling to 5 times Ebit for marketing services firms (from 6 to 6.5 in 2008) and dropping to 6 to 7 times Ebit for both digital marketing agencies and digital marketing technology companies (from 7 to 8).
The lower multiples are welcome by buyers in a difficult if not impossible credit environment. While debt-to-cash flow ratios last year hovered between 3 and 3.5, AdMedia's Alpert reports assisting on a deal this year where the banks stopped lending at two times cash flow.
As for marketing spending by category, major gains are projected for such online areas as word-of-mouth/social media marketing, search marketing, mobile marketing, behavioral/contextual marketing, lead generation, customer relationship management/analytics, video advertising, e-mail marketing and online gaming/in-game advertising. Each of these nine categories is expected by more than 50% of respondents to experience spending increases in 2009.
In offline marketing, word-of-mouth marketing is the only category for which more than half of respondents envision increased spending. And less than 20% expect increased spending in such traditional offline areas as market research, design/branding, media buying/planning and general advertising.
Small wonder, then, that 75% of respondents indicate an interest this year in entering or expanding an online marketing area like mobile marketing. "Client demand for online capabilities emerged as this year's key driver," AdMedia explains. "Driving this may be the maturing of interactive marketing services and the belief that interactive is now a standard component of the marketing mix." - Richard Morgan
Comments
The M&A market will not slow as some have speculated. Companies worldwide will look to increase their business and extend their markets using online research and other non traditional methods. The resulting reaction of these discoveries may be smaller deals, but there will be plenty of them. M&A is still very much alive, just the players are adjusting to the evolving economy.
Thomas Bowen
www.tx2systems.com