M&A is exploding – will there be fall-out?

It will not have escaped your notice that the M&A market is going through one of its most active periods in recent history. The Wall Street banks are making super profits, Rothschilds has had its strongest performance since it was founded in 1810.

And this is very keenly felt within the technology, digital and marketing services sector. Activity in the last two quarters has surpassed levels we’ve seen over the last five years.

Access to clients’ digital budgets

The market continues to be driven by a desire to gain access to brands’ digital budgets. Either through the lens of the CMO or the CTO, or somewhere in between – CDO / CIO. The ever-increasing digitalisation of customer interaction with sales and marketing has created a high growth sector full of innovation that is ripe for consolidation.

Acquirers are looking for the best companies operating within the continuum that spans digital strategy, through digital transformation to continued digital marketing. Whether this is upstream strategic, data consulting, or implementation of enterprise-ready technologies, these capabilities have evolved or are evolving – Adobe / Salesforce / Amazon / Google / Modern tech stack / Headless CMS.

This is not new – why the acceleration?

We have seen a few cycles of M&A inspired by digitalisation. A few years ago, everyone was talking about consulting companies that had realised they needed to bring in creative digital consulting and contemporary enterprise technology skills.

This time round, Private Equity has become the driving force, whether for platform deals or financing the subsequent buy-and-build for the platform, they are buying the in-demand assets. From a side presence, they have become omnipresent in our sector with multiple new houses joining the fray. There are a few reasons for this acceleration:

  • Emergence of technology-enabled agencies. Agencies that have technology that increases efficiency or enhances their consulting operations. With a dearth of pure play technology companies, particularly in the UK / Europe, the exposure to technology these companies have will support PE houses’ investment thesis.
  • High growth market accelerated by COVID-19. During the global lockdowns we were forced to live our lives online. There are clear winners who scaled their companies over the last two years (or have bounced back stronger). Consumers have come out the other side more digital.
  • Fragmented market. Whilst there are a few companies that have scaled successfully with relatively low barriers to entry, the market for in-demand capabilities remains fragmented. This supports a buy-and-build growth strategy, favoured by most PE-backed platforms.
  • Stable revenue, high margins and great clients. The best companies operating in this space are able to command premium pricing structured as a retainer (or retainer-like) model working with the world’s biggest brands. Whilst these are desirable for many acquirers, they are essential for Private Equity.
  • Proven secondary market. Private Equity need to know they have an exit route and are always looking for precedents – successful exits that demonstrate market appetite. The trading multiples of S4 Capital / media.monks (Sir Martin’s digital-only group) and Globant (digital transformation and innovation) are eye watering. This has been supported by the IPO market switching back on – in the last year about a third of our deals have featured IPOs at some point in the narrative.
  • Dry powder. It is estimated that Private Equity has $1.9 trillion of funds they need to invest and – anecdotally – almost every investor we regularly deal with has raised a new fund in the past 18 months. As this amount continues to grow, there are more PE houses moving into each ‘hot’ sector and looking for the next one.

Why is Private Equity winning?

Private Equity is pervasive both in terms of platform investments and the subsequent add-on targets that they are buying.


The companies they invest in are dynamic, entrepreneurial and designed to move at speed. Well-funded and on a growth curve, their valuations can be 30-50% ahead of established market norms for the best assets. They are focused on integration and a group exit, rather than multiple operating units and long earn-out deals.

The proposition is extremely appealing for many sellers, realising cash today, getting equity upside when the Private Equity investors exit and joining these dynamic and entrepreneurial companies. They are able to compress deal processes from 6 months to 6 weeks. Their approach, quite simply, is winning.

But what does this mean for the market landscape?

Consultancies, once the aspirational exit partners for many sellers, have slowed down - apart from Accenture which continues its march for global domination. Many have built the capability they sought, those that haven’t still have the caché to land targets without offering a significant premium – focusing instead on certainty of payment. However, in some instances they are struggling to compete: constrained by partnership culture or internal structures, they are missing out on some assets.

The biggest impact maybe on the traditional holding companies and older independent buyers. Good companies still producing great creative work, they are constrained by their non-digital heritage and legacy M&A. During COVID they became very inward-looking, sorting out complex historical problems and tidying up group structures that should improve their outlook. But they have an inability to buy marquee businesses, often due to hierarchical structures preventing decision making and valuations constrained by a focus on profit and payback rather than growth.

The holding companies have a serious risk of being left behind. Without innovation their position in the market and ability to service clients will decline, in turn reducing their valuations and thus reducing their ability to buy and innovate.

So, what should they do?

There are a number of simple things they can do. Most importantly building the right deal process to make them credible ‘contemporary’ buyers. This will empower the right people in their teams to make decisions and change the lens to look at assets more strategically, revisit the deal models from 15 years ago and modernise.

But more than this, Private Equity is creating an opportunity for them. Their investment is transitory and they will look to sell on. A secondary financial investor is the easy option but not necessarily the best one. What they really need to prepare themselves for is when the PE houses are trying to realise their money and ensure they are ready to buy and integrate these businesses successfully.