New era of Consolidation Ahead for Global Advertising and Marketing Sector in 2016
04 December 2015
- Sector set for 11% jump in deal volume globally in 2016
- BDO research ranks key threats to companies and drivers of market consolidation
- Vulnerable firms in the mid-market may need to prove their value as potential acquisition targets
The 2015 BDO Marketing Services Risk Factor Report released today suggests consolidation in the sector will be turbo-charged in 2016 as a new era of mergers takes hold. The research predicts deal activity in the sector will jump by 11%, from 532 deals in 2015 to 589 in 2016, as companies are impacted by key risks.
The survey of 50 companies across 10 markets, supplemented with in-depth executive interviews, has identified five key challenges that sector leaders will need to navigate in order to protect their margins and market share. Failure to do so could leave firms, particularly those in the crowded mid-market, vulnerable to M&A offers.
The key challenges are grouped by:
- Macroeconomic and liquidity risks
- Changing customer demand
- Competition risks
- Technology and skills risks
- Regulatory risks
Andrew Viner, Leader of BDO's Global Media & Entertainment team, commented: “Advertising and marketing companies are the sales experts, but in 2016 these companies will be the ones in the shop window. We're predicting an 11% increase in deals in this sector with those in the mid-market likely to be the most attractive assets. These businesses need to be ready, either to prime themselves for a sale or to stave off an M&A”
The uplift in deals will reverse the 3% decline that occurred between 2014 and 2015, in part caused by the slowing of emerging market such as Russia, Brazil and China, as well as geopolitical shocks such as the European refugee crisis.
BDO Marketing Services Risk Factor Report – Key Challenges
- Macroeconomic uncertainty and liquidity risk
Under macroeconomic pressure, marketing budgets are some of the first to be curbed and subsequently, 72% of businesses surveyed saw cash flow as a threat for the year ahead. Additional headwinds such as FX fluctuations and accessing finance for growth, both cited by 68% of firms surveyed, mean that illiquid firms may be under greater pressure to sell.
- Changing demand creates uncertainties
With global brands shifting external spending in-house and with consumer habits evolving in response to new technologies, demands on marketing companies are changing. 58% of firms fear that these trends will put revenue streams at risk and failure to innovate in 2016 could make firms vulnerable.
- Adapting to disruptive competitors
Over saturation of the market is cited by 48% of companies, who fear loss of market share, reduced fees and lower profits. As a result, businesses have come to rely on a smaller number of clients for a higher proportion of their revenue and 46% of those surveyed noted that the loss of a core client in 2016 would severely affect profitability.
- The war for talent and technology
The supply of high-skilled talent is failing to keep up with demand. 50% of companies fear being able to attract and retain the right talent in 2016, and those without the capital to invest may be left behind if key staff move on, particularly as technological advances alter the playing field.
- New regulatory barriers
More than half (54%) of marketing service businesses cited the shifting regulatory environment as a risk, with the public health agenda and European data-privacy legislation especially high up the list of concerns.
- Full chart of historic deal activity: