In the 100th episode of #WhatsNextAgencies, Kim Alexandra Notz engages in an insightful discussion with Sebastian Schirl, Managing Director at Bryan, Garnier & Co’s Business & Tech-Enabled Practice.
Specializing in the Digital Media industry, Sebastian shares market perspectives and current dynamics that shape the industry’s trajectory.
Providing a clear assessment proves challenging amid current geopolitical and inflationary context, as well as the heightened volatility that is steering a shift towards private placements during adverse market conditions. However, two transformative shifts demand attention: AI and profitability.
Key industry trends: AI, profitability and measurable success
The escalating impact of artificial intelligence (AI) will lead to a paradigm shift, set to fundamentally alter the marketing industry. Before October 2022 and the emergence of OpenAI, the world was vibrant, and everything seemed to be progressing smoothly. Sebastian highlights impressive figures: currently, every second a content asset is generated by AI, and by next year, three out of four content assets will be AI-produced. This transformative shift poses challenges for those engaged in contextual marketing, especially concerning text copy, and presents opportunities for those who focus on leadership in creativity, an area where AI has limitations. The imminent influence of AI on the industry is expected to rearrange the landscape.
Another prominent trend that Sebastian addresses is the surging demand for agencies to exhibit measurability, focusing on performance marketing and data-driven approaches. A paradigmatic shift is evident in the evaluation of agency performance, with profitability taking precedence over conventional growth metrics. Investors, encompassing both strategic and financial realms, now prioritize sustained profitability when contemplating acquisitions.
Sebastian shares insights on actively increasing company value by focusing on transparency, data, and performance. Irrespective of sales intentions, understanding trends, potentials, and growth areas is crucial for agencies to strategically position themselves for the future.
Agencies must become more measurable, emphasizing data and performance. Performance marketing, data-driven approaches, and leveraging First Party Data are becoming crucial for success. Agencies that adapt to these trends and demonstrate profitability will navigate the challenges effectively.
Profitability has become a central focus for investors, with a shift away from solely prioritizing rapid growth. Stable and profitable companies in the digital consultancy and performance sectors are especially sought after. The ability to showcase profitability has become essential for a favorable valuation.
M&A dynamics
The M&A landscape is influenced by these factors, with a trend towards stability and profitability. While uncertainties persist, successful companies can find opportunities, and we anticipate an increase in transaction volume in the coming year.
Investors, both strategic and financial, play a crucial role. In the current climate, stable and middle-market technology companies are more sought after, while large agency holdings are exhibiting more caution in acquisitions. Challengers, often from the technology sector, are becoming more active in the M&A space, driving deals with a focus on technology as a core service element.
As the industry adapts to changing dynamics, maintaining agility is crucial for entrepreneurs, investors, and industry professionals alike. The journey from agency ownership to acquisition is nuanced, requiring an adept understanding of cultural shifts, challenges, and the intricacies of valuation metrics. In this evolving agency landscape, staying informed, adaptable, and well-connected remains paramount for sustained success.
For marketing agencies navigating the evolving landscape, key considerations include embracing data-driven marketing strategies and integrating technology into core services. In the M&A realm, agencies, particularly challengers, are subject to private equity involvement, with strategic and financial buyers approaching deals differently.
Relationship-driven approaches and a focus on EBIT (Earnings Before Interest and Taxes) valuation, often normalized for private, owner-led agencies, are crucial in initiating successful discussions. Factors influencing valuation multiples range from agency performance to service diversification, impacting negotiations with both strategic and financial buyers. Motivations for selling, including a generational shift and business challenges, contribute to the dynamics of agency sales. Looking ahead, agencies must align with market demands, addressing growth challenges and optimizing profitability before considering M&A. Post-sale success hinges on strategic planning, integration execution, and adapting to new corporate structures within larger groups. As the agency landscape continues to evolve, understanding these factors is essential for agencies planning for future growth, M&A, and long-term viability within the industry.
How to navigate the M&A landscape
Embarking on Mergers and Acquisitions (M&A) requires a meticulous approach from marketing agencies. First and foremost, agencies should articulate clear objectives, whether seeking growth, diversification, or an exit strategy. Conducting a comprehensive assessment of the agency’s value, including a SWOT analysis, is crucial. Building strong industry relationships through networking and staying abreast of market trends enhances visibility. Financial health and legal compliance should be prioritized, while showcasing the team’s expertise is essential. Creating a well-organized data room and engaging experienced advisors streamline the process. Thoughtful negotiation, transparent communication, and detailed post-acquisition integration plans contribute to a successful M&A journey.
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About the author
Sebastian Schirl is the managing director of Business & Tech-enabled Services at Bryan Garnier & Co
Date published: Dec 12, 2023
For more information, please contact Sebastian Schirl.
Sebastian Schirl
Investment Banking
About Bryan, Garnier & Co
Bryan, Garnier & Co is a European growth investment bank that helps healthcare and technology companies become global champions. By combining extensive sector expertise with an entrepreneurial mindset, Bryan Garnier provides companies and their investors with independent growth strategic advice, and privileged access to buyers and capital in Europe, the US and Asia.
As a full-service investment bank, the firm offering includes private and public growth financing solutions, mergers and acquisitions (M&A) advisory, research insights, and institutional sales & execution. Founded in 1996, Bryan Garnier & Co is an independent partnership with around 200 employees located in major financial centres in Europe and the US.