M&A Watch: H2 2023 sees a significant drop in activity

The number of mergers and acquisition deals in the marcoms sector continued to decline in the last six months of 2023, according to analysis from Canaccord Genuity (formerly CG Results).

Marcoms M&A deals in the second half of 2023 totalled 247, down 39.2% on H2 2022, when there were 406 deals. This was also a 25.6% fall from the first half of 2023, when 332 deals were completed, although the H2 period does include the traditionally quieter summer period.

Despite these overall drops in volume of deals, James Kesner, managing director of investment banking at Canaccord Genuity, said: “As a wider trend, we are still seeing excellent appetite for top-tier assets showing growth and sought-after capabilities.

“Opportunistic deals remain evident, but deals are taking longer as buyers and investors manage risk and the more marginal deals are sat on or fall away,” he added.

Top buyers

H2 2023 saw a major decline in deals led by agencies—either by themselves or with external support.

There was a 41.8% fall on agency-only activity in H2 2022 and an even more significant fall of 52.1% in the same period for private equity-backed deals. Only pure-play private equity activity slightly climbed by 13.3%.

“It was interesting to see a major decline in activity from private equity-backed strategics in H2 2023 with 34 deals transacted on, which is a notable fall from the 86 deals recorded in the first half of the year,” Kesner said.

“Many of these groups have been focused on integration and trading challenges that exist in pockets across portfolios, but we expect to see a busy 2024 following strong platform investment in recent times and more exits on the horizon. Private equity firms continue to compete and win against strategics on valuation and sit on significant funds that need to be deployed,” he added.

Regions

Although North American companies continued to be the most active buyers of agencies in H2 2023, they only managed 107 deals, a 32.7% fall in volume from H2 2022’s 159 deals.

A decline was also experienced in other countries. There was a 50.9% drop among UK buyers in the same period (57 deals in H2 2022 vs 28 in H2 2023). There was a 22.7% decline in buyers in Canada, a 38.4% drop in buyers in Japan and a 48.1% fall in France.

Kesner said it was worth noting that North American targets acquired by private equity fell from 57 in H1 2023 to only 17 in H2, “reflecting an increased organic focus coupled with an important political year ahead”.

There were 43 Western European targets acquired in the second half of the year, down from 67 in H1, and 31 UK targets acquired in H2 against the 39 acquired in H1 2023.

Deals of note

One of the major M&A stories in the UK was the majority investment (51%) by Havas in Uncommon Creative Studios, the agency founded by Grey London’s former management trio in 2017—Natalie Graeme, Lucy Jameson and Nils Leonard. The deal was estimated to be worth up to £120 (US$ 152) million, assuming all the final targets are hit. 

Other deals of note included US private equity company Falfurrias Capital Partners making a growth investment in Brainlabs to drive the next stage of the media group’s expansion. The agency will continue to be run by Daniel Gilbert as group CEO.

“The deal represents a successful exit for Livingbridge, which made a minority investment in 2019 and helped with US growth and eight acquisitions during its involvement with the agency,” Kesner said.  

Meanwhile US challenger network Stagwell’s acquisition of US-based Tinsel Experiential Design added immersive customer experience and experiential engagement capabilities alongside a top-tier client list.

Bridgepoint made a minority investment in Madrid-based integrated marketing group Samy Alliance, with Aurica retaining a 48% stake in the business. The social-first and data-led company operates across 50 geographies and has shown consistent revenue and Ebitda growth. This investment will focus on accelerating US and Northern European growth.

Kesner is positive about M&A prospects in 2024, saying he has already seen “good momentum with pent-up demand”.

He added: “Resilience is key in targets for buyers and investors. Strong management teams drive appetite as the war for talent continues in a fast-paced market.”