With an era of organic cost cutting nearing an end, companies will turn to each other as they explore new ways of creating efficiencies, according to new research.
Some firms will set up strategic partnerships in an effort to gain customers. This will include everything from merger activity to joint ventures and alliances among diverse marketers such as catalog companies, financial service product marketers and publishers. Merger activity among companies that are more closely aligned, such as mid-sized list firms, data management and other service providers will increase due to cost savings considerations.
Regardless of their merger activity, list firms will focus more on becoming “customer acquisition companies,” which will expand their offerings to encompass all forms of media that can yield customers for their clients. This will happen as marketers increasingly demand integrated offerings, such as e-service offerings, according to Petsky Prunier.
But there will be revenue to support these activities. A move toward outsourcing will compel marketers to explore third-party provider of call center, direct mail, e-mail and accounts receivable functions.
What does all this mean for merger and acquisition financiers? Well, the focus will continue to be on middle-market service providers with more than $10 million in free cash flow. Borrowing for transactions will remain at between two to three times cash flow, while most transactions themselves will be valued at between four and six times cash flow.
Only industry leaders will command more than six times cash flow, with the most desirable industries being those in the e-mail, statement processing, database analytics, transaction processing or list providing fields.
These trends are further detailed in “Direct Marketing Deal Notes
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