Strap in – 2025 is expected to deliver an M&A ramp up and here’s why

First, why the decline? In a nutshell, economic and geopolitical uncertainty. Inflation increased globally from late 2021 and continued to persistently rise and remained high (above 5% in the case of the UK) until recently. Central banks hiked interest rates to bring inflation back under control, leading to increased cost of debt, which the majority of acquirers rely on to finance transactions.

Couple this fundamental financing stranglehold with major global conflicts, fears of a global recession, 2024 elections in the UK and the US, and an indication from the new UK chancellor that Capital Gains Tax (CGT) rates would dramatically increase, and you have the perfect storm. Buyers became more selective and offered lower valuations, with sellers reluctant to accept these valuations, particularly given CGT fears at the time.

Whilst we saw a flurry of UK transactions closing prior to the budget, and some that missed the deadline completing shortly after, there has still been a significant reduction in deal volumes over the last couple of years.

Falling inflation and interest rates

So, what about M&A in 2025? The consensus view, supported by us at Green Square, is we’re in for a very busy year as we see the factors that drove the reduction in activity start to reverse.

Most notably, inflation has reduced and thus interest rates are slowly coming down and this is expected to continue into 2025. Putting aside growth and political issues in France and Germany, the UK and US are seeing some recovery and economic optimism is improving, even though we are yet to see what the second Trump administration will do.

Private Equity is sitting on a lot of cash which it needs to either deploy or give back to investors, with spending clearly being their preference. On top of this, PE firms typically hold investments for 3-5 years and, due to the relative lack of activity over the last couple of years, many are holding investments at the latter end of this timeline which they need to offload. Thus, we can expect to see plenty of PE disposals in the coming year.

Then there are those agencies that wanted to sell in 2024 but decided to hold off for all the reasons stated above. Time waits for no one and, with the increase in UK CGT being lower than expected (at least for the time being), there’s a lot of pent-up shareholders looking to realize value. Put all this together and you have funding costs coming down, more businesses coming to market and the gap between buyer pricing and seller expectations narrowing. Hence our forward-looking positivity.

In terms of our marketing services universe, we saw a diverse crowd of acquirers in 2024 with PE-backed outfits tending to be the most prevalent. The global networks were fairly quiet, focussing on infills where they lacked a specific skillset rather than statement transactions, aside from the just-announced Omnicom IPG, Valtech buying Kin+Carta, Publicis acquiring commerce specialist, Mars United, and LDC-backed MSQ doubling its presence in the US with SPCSHP.

Management consultancies were also relatively inactive, with the exception of Accenture buying Unlimited.

Key M&A areas in 2024

Whilst the market was somewhat muted, certain marketing specialisms saw greater M&A activity in 2024, with key areas of interest as follows:

PR. This was possibly the most active discipline for acquisitions with a mix of consolidation, disposals, MBO’s and new entrants.

We saw WPP merge its Hill & Knowlton and BCW agencies to create Burson, whilst offloading its majority stake in FGS Global in a $1.7bn deal to KKR. Publicis acquired Influential, the world’s largest Influencer agency, whilst Havas also got in on the act buying the somewhat smaller Wilderness. Bully Pulpit (BPI) was a new entrant to the UK market, acquiring Seven Hills and Message House, making the UK BPI’s biggest European market and next largest outside the US and Public Affairs holding company PPHC bought UK government relations firm, Pagefield, another first step for a US firm into the UK.

Healthcare marketing transactions didn’t disappoint and, despite some big pharma woes resulting in less marketing spend, transaction activity remained strong. This was primarily across the more scientific areas of market access and regulatory compliance, with PE-backed Clinigen acquiring Ascencian and Kinesys, but momentum remained across the more general medical branding and communications spectrum with some decent-sized transactions, such as IQVIA acquiring Ceuta, together with many smaller agencies including BioStrata and AKT also realizing value.

Digital, as always, was another key area, the most notable deal being PE outfit ECI buying Croud from LDC, but we also saw MSQ buy 350-person German CX agency UDG. As expected, AI is fast becoming the hottest area with US digital engineering and AI enabler EPAM acquiring First Derivative, Blackstone-backed HH Global buying Northell Partners and Healthcare specialist Real Chemistry buying Avant for its AI-driven insights and marketing expertise. There were also many transactions across Social, Data analytics, Performance and e-commerce, all areas which continue to be in high demand.

Events and Experiential has seen a significant bounceback over the last couple of years post-COVID as the smarter players shifted their proposition to digital alongside physical engagement during that period. There’s been high interest in areas which involve people interaction as brands strive to get ever closer to their consumers, be it B2B, B2C or D2C. 2024 saw PE-backed ImpactXM buy Matrex in the US and reach out to the UK for the first time in acquiring Enigma. This is a buyer to watch in the Experiential space as it looks to build out from its North American heartland. Stagwell continued its acquisition march, augmenting its experiential positioning in buying Sidekick (a Green Square transaction), and UK-based major Experiential independent, DRPG, bought North Carolina’s Special Events.

Retail, e-commerce and Shopper has also had a resurgence, as indicated by the Publicis Mars deal mentioned earlier. We saw Acosta buying Dee Set, Product Connections and Crossmark, and Quad entering the In-store retail media market with its acquisition of DART. French Retail Marketing specialist, Altavia, expanded its overseas offering with acquisitions in Casablanca (D-Aim) and Singapore (ielo design).

This doesn’t mean to say other sectors weren’t of interest, and even long-standing independents in the less active sectors sell eventually. Serviceplan’s Mediaplus acquired Total Media (albeit this was based on a long-term partnership prior to acquisition), and Havas bought 40-year-old B2B specialist Ledger Bennett.

The year ahead

Returning to 2025, as mentioned earlier, we expect to see an uptick in M&A activity across the board and experience has shown that, from a macroeconomic perspective, there’s no point waiting for the perfect time to go to market - business owners and their teams just have to rise above the cacophony of global disruption and focus on making their enterprises the best they can be. More importantly, from a shareholder point of view, within a business’s lifecycle there is often a perfect point in time to sell, and it’s critically important not to miss that window.

After what has been a fairly tumultuous 2024, we at Green Square wish everyone a peaceful and relaxing Christmas and New Year. Let’s all raise a glass to 2025.