Growth and Consolidation Heat Up M&A Activity
The direct marketing industry generated $14.1 billion in merger and acquisitions activity during the first half of 2004, representing 275 transactions, according to a new report from investment banking firm Petsky Prunier.
While there were no billion-dollar deals during this period, the sheer number of transactions increased by 10% over first-half 2003. Additionally, second-quarter 2004 saw a 29% jump in the number of deals over the identical year-ago period.
In its analysis, Petsky Prunier described the mergers and acquisition environment as “as buoyand as we have seen it in years.” The New York-based firm attributed this to accelerating growth strategies, including expanding into new geographic locations and acquiring new customer bases; the desire of companies to leverage core competencies, consolidation for the benefit of pricing power and operating efficiencies; and private equity activity by venture capitalists.
Petsky Prunier divides the industry into three sectors – marketing services, marketing technology and marketers. During the first half of 2004, there were 111 transactions involving marketing services firms, which were valued at $5.2 billion. The average deal size was $47 million, and the median deal size $10 million.
Interactive advertising firms, including search-related deals, accounted for 18 of these transactions, followed by 17 deals among agencies, 15 transactions involving call centers and 12 that included e-mail and printer firms. Strategic buyers made up 83% of the transactions and 75% of the value, while private equity accounted for 7 buyouts and 12 venture deals.
According to Petsky Prunier, while the industry leaders among the traditional marketing service providers (such as agencies, lettershops, call centers and printers) make a lot of money, there are too many marginally profitable firms selling too many undifferentiated services to a mature market. Furthermore, customers want fewer service providers.
That said, companies within burgeoning sectors of the industry, such as interactive advertising, database analytics, marketing data and specialty media, are moving to acquire additional offerings to their customers.
Amid the marketing technology sector, 105 deals, worth $2.7 billion, were consummated during the first half of the year. Marketing software companies accounted for 35 of them, followed by 18 customer relationship management and sales force automation tranactions, 17 supply chain deals, 12 data analytics transactions and 10 transaction processing agreements.
The activity reflects consolidation of the fragmented technology sector. CRM, supply chain, and marketing software firms are among the disciplines seeing the most M&A activity these days. And venture capital is flowing freely within this sector, according to Petsky Prunier.
Marketers made up 59 of the transactions, with an aggregate value of $6.2 billion. Catalog deals accounted for 36 transactions, valued at $4.7 billion, while the 12 interactive deals amounted to $652 million.
Eighty percent of the transactions were made by strategic buyers, with the rest coming from private equity firm buyouts. The private equity groups usually paid less for their acquisitions than the strategic buyers did.
