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Why M&A activity in the Digital Marketing Industry will gain in 2020

M&A activity in digital marketing is rapidly transforming

The trillion-dollar advertising space is witnessing rapid M&A activity, primarily on the digital marketing side. With the increase in digital advertising revenues, there is a global demand for more online content. Lead generation, advertising, search engine optimization, and affiliate partnerships are significant drivers of revenues in digital marketing. This demand increases the value of the content-related business in an era where everyone in the digital world is connected. The traditional advertisers have shifted their significant spends to digital marketing and mobile internet advertising.

Global digital marketing spending is predicted to reach $517 billion by 2023

There is a high M&A activity involving digital agencies due to strong growth and high fragmentation of the digital marketing industry. Traditional advertising agencies and private equity firms are targeting businesses that offer growth advantages. Digital capabilities and relationships have become a prerogative for traditional advertising agencies and holding companies as they look to expand their digital revenues and broaden their portfolios. The percentage of media spend on digital marketing will continue to improve in the future.

Evolving technologies in digital marketing

The emergence of new technologies has delivered individualized features and more in-depth experiences. Companies are enthusiastic about investing in the latest technologies because post-sales marketing has become a dominant element among the customer journey.
Chatbots and personalized messages have enhanced customer experiences. Audio queries made possible by the digital assistants are driving voice search. Online video advertising is an evolving segment. AI analytics is assisting companies in developing their target marketing strategies based on real-time data. These data provide meaningful insights to improve customer engagement, optimize media budgets, and marketing strategies. Social search is shifting e-commerce for product reviews and suggestions.
Going forward, we will see more future technologies that will continue to drive rapid growth. This expansion will generate opportunities for M&A.

Large user platforms

Platform companies, including Google and Facebook, deliver free digital products and services but are still able to earn because they reach vast audiences.
Larger the platform, the more consumer data is collected. When more consumers use the platform, firms obtain more data. With more data, the platform can tailor the content consumers see and hold them longer on the platforms. This data improves customer experiences and enhances advertising capability in better understanding consumers and deriving more revenues from the targeted advertising.

Affiliate partnerships in Digital marketing

Affiliate partnerships use affiliate websites to promote products and services that belong to other companies. The valuation of an affiliate website relies on the specific terms of the affiliate program. These factors include longevity, product category, commission tiers, high-quality content, and link portfolio. Sites that satisfy these factors have better margins and earnings, which are desirable to investors. Affiliate businesses depend on high-quality content and end-user action to produce revenues.

Digital marketing M&A exit opportunities

Many agencies begin with the objective of selling in mind. A digital marketing firm has low entry barriers. They also have low growth options. Brands do not like to work with corporates. Talent retention is severe in the digital marketing sector.
An agency with robust historical growth of more than 20% can lead to higher multiples. Acquiring small agencies offers growth opportunities for a large advertising agency groups and a more natural way to cash out for the owners of small agencies.