Enterprising Ideas Topic
  • Digital Marketplaces & Databases
Enterprising Ideas
SUBSCRIBE TO ENTERPRISING IDEAS
March 8, 2018

Why Dealmakers Are Attracted to the Digital Marketing Sector

MHT Partners  | Business & Information Services Investment Bank

Spending on digital advertising in the U.S. continues to explode, mainly because Americans love their devices. We spend close to 11 hours a day—approximately two-thirds of our time awake—staring into a phone, computer, tablet, wearable device or other screen-based product. Given this attraction/addiction, digital marketing has become the largest spend of many advertisers’ budgets.

According to eMarketer, digital ad expenditures surpassed spending on TV ads for the first time in 2016 and digital extended its lead in 2017. eMarketer estimates that digital ad spend in the U.S. increased 15.9%, reaching $83.0 billion in 2017, while TV ad spend only grew 0.5% to reach $71.7 billion. eMarketer expects spending on digital ads to continue its robust growth with double-digit growth rates continuing through 2021.

The vigorous growth in digital advertising has supported strong merger and acquisition activity for digital advertising agencies, which help clients spend their digital marketing dollars more efficiently. Interest in acquiring digital agencies is widespread, with global consultancies and private equity firms joining traditional advertising agencies in the hunt for companies that will benefit from the sector’s rapid growth.

Traditional agencies such as WPP, Omnicom and Dentsu are actively building their digital capabilities and relationships to garner a larger piece of the ever-expanding digital pie. Already, the largest advertising agencies have 30-40% or more of their revenue coming from digital. That percentage should grow as traditional media continues to be pushed aside by the digital bully.

Global consultancies such as IBM, Deloitte, KPMG, and Accenture continue to push further into the sector with additional acquisitions. According to a recent report issued by R3, an independent consulting firm, consultancies invested $1.2 billion in agency acquisitions worldwide in 2017, a 134% increase compared to 2016.

Private equity is also attracted to the burgeoning digital marketing sector, not only for its rapid growth, but also for its size and fragmentation. According to IBISWorld, the U.S. Digital Advertising Agencies’ industry generates revenue of approximately $15 billion, and over 7,700 businesses comprise the industry. IBISWorld predicts the industry will grow at an average annual rate in excess of 11% through 2021. Private equity firms such as Baird Capital, BV Investment Partners, Mountaingate Capital, Stagwell Group and Svoboda Capital Partners have invested in digital agencies and others continue to look for their chance to enter this growing, attractive industry segment.

Bottom line: hungry, aggressive acquirers will continue to seek differentiated, high-growth digital agencies as marketing budgets continue to shift towards delivery of personalized advertising to increasingly mobile Americans.

Submit a Comment

Your email address will not be published.