An insight into the buoyant M&A market.
SI Partners Tristan Rice gives his latest update on the state of play in the creative and technology M&A market.
To say that M&A activity has rebounded since our last update would be something of an understatement. Since last Autumn, the market has got hotter with each passing month – few corporate lawyers or bankers I’ve spoken to can remember ever being so busy.
At one level, this isn’t a huge surprise. As we said last year, Covid has accelerated the shift to digital communications, technology-enabled solutions, cloud transformation and the increasingly important role of customer data and analytics.
While the tech consulting firms scramble to buy cloud solution providers – Accenture bought 7 in March this year would you believe? – investors in the marketing world clearly believe there are untapped gains to be had post-Covid, perhaps having seen the growth and stunning market valuation of S4 Capital.
Jellyfish, Dept, Brainlabs, Croud and others already have Private Equity-backed buy and build strategies well underway. And there’s an growing list of Private Equity funds looking for platform acquisitions that they can use to grab a slice of the action.
Many have much stronger balance sheets as a result of the substantial cost savings they’ve made while everyone’s working from home. Why not invest to expand their capabilities and geographies, capture more of their clients’ spend and increase the value and attractiveness of their business? That is, if they can get deals done they get approached themselves.
But there are only so many quality businesses around to buy. Competition is fierce and more adventurous buyers have ended up paying some rather eye-watering multiples that some might struggle to rationalise.
Investors, particularly private equity, look to recent deals or “comps” as a guide to valuation and in a pretty incestuous market, rumours of deal values achieved spread rapidly, increasing sellers’ expectations; so it’s not long before market multiples across the board become inflated and everyone just considers it to be the new normal.
As a seller it’s obviously a great time to realise maximum value – although we always caution our clients that once the money’s in the bank, it’s the fit that you’ll really care about. But as a buyer, you have a trickier choice to make: accept that to buy quality assets in key segments you’re going to pay significantly more than you would a year ago, or hold your nerve and wait for the frenzy to subside, at the risk of being left behind.
Industry doyenne, Lorna Tilbian, once told me that megadeals were often the sign of a bubble about to burst. We haven’t seen one yet, but perhaps there are some early signs, such as the rumours around Vivendi stalking Publicis. Or that Martin Sorrell has some huge merger deal up his sleeve.
At SI Partners, we believe this buoyant M&A market still has legs, at least for the rest of 2021. How long it survives beyond that is anyone’s guess. But what goes up, tends to come down eventually…
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