As part of our January Predictions series, Green Square partner Barry Dudley gives his take on which agencies will be most attractive to buyers this year – and who those buyers will be. I couldn’t resist it. ChatGPT: What are the predictions for the creative, marketing, media and tech M&A market in 2023?
“I am sorry, I am not able to provide predictions for the creative, marketing, media and tech M&A market in 2023 as my knowledge cut-off is 2021 and do not have any recent information about the same. However, you can check with financial experts or consulting firms for their predictions”. ChatGPT: What were the predictions for the M&A market in 2019? “In 2019, many experts predicted that the M&A market would continue to be active, driven by factors such as a strong global economy, low interest rates, and high levels of corporate cash reserves. Some analysts also predicted that cross-border M&A activity would increase, as companies sought to expand into new markets and gain access to new technologies. Additionally, there were predictions of an increase in private equity and strategic deals, as well as an increase in deals involving technology and healthcare companies. However, the COVID-19 pandemic and its impact on the global economy has changed the situation and many predictions did not come true”. Hmm, have I learned anything? ChatGPT has a 2021 cut-off. ChatGPT is very often ‘at capacity right now’. And I should check with a financial expert or consulting firm for predictions – guess that could include me… The three commonest questions we are asked at Green Square are: “What’s the market like at the moment?” “What are multiples like?” And “will someone want to buy my business?” To be expected, given what we do. Our answer is always the same – if you have a great business there will always be people interested in you and people that will pay a price that should make you happy. (The period immediately after covid landed, and the 2009 financial crisis, were possible exceptions.) And that’s our answer right now. So, who has the money to make you happy? Private equity (platform acquisitions) and PE backed groups (acquiring bolt-ons for the platforms) were big acquirers in 2022 and will continue to be so in 2023 – they have to put their funds to work. Alongside this, the strategic acquirer universe is continuing to grow. However, through 2023 we believe their eyes will be on mid-sized and smaller businesses with very specific capabilities, deep skills and experts rather than generalists. The culling of staff at Goldmans tells us all we need to know about the mega-deal end of the spectrum drying up for now. Key to being attractive is having a compelling growth story that is sustainable into the future. And perhaps an acquirer will have attributes to help accelerate that growth further – access to dev capability or maybe new geograhies. This is particularly important during any earn-out period in a deal, which is why we put a lot of time and effort into understanding all growth levers. So, what do we think will be key areas of acquirer interest? Despite Netflix and Disney’s rocky times of late, content is still going to be very much in demand – from long-form streaming to short-form social. But it will likely be about quality, not quantity. The influencer world has gone through plenty of twists and turns but is going to remain a vibrant space. Perhaps trust and purpose will be key traits for the names in 2023. Brand experience is going to continue its renaissance back out of lockdown. Here the winners will be those who weave the physical with the virtual, that do so with authenticity and are culturally driven. TikTok, BeReal, Likee, Instagram Reels, Triller – who knows which will be the 2023 winners, but social will remain a fundamental route to audiences. One of my partners, Tony Walford, wrote just a few weeks ago about e-commerce specialist agencies acting as a bridge for brands to access the increasing range of online retail platforms. These agencies are high on the ‘must have‘ list for global acquirers that need to ensure their arsenal includes such expertise. Performance marketing agencies always flourish when money is tight – first party data v third party cookies, targeting, delivering measurable ROI. A key area here will be a shift to signal-based marketing, anticipating what customers want. In tough times, many FMCG businesses focus more heavily on marketing that directly shifts products (rather than long-term brand building exercises) to appease the stock markets. This again plays into the hands of performance marketing agencies, particularly where their fees are linked to client sales. High-end strategic consultancies will be in demand, with sustainability, purpose and ESG being sought after areas of expertise. Similarly, smart thinking from the PR and comms world is also going to be in demand – there is no shortage of businesses managing their way through ups and downs right now. The tech sector in particular. And then there is healthcare. Don’t know that I need to comment much here as I can’t ever remember a time when healthcare wasn’t a sector that acquirers were interested in. Is there anything surprising in all of this, I’m not sure there is. But I do think there are two spaces that will prove transformational over the next few years that you will all need to be factoring into your future plans. Web3 and AI. Facebook’s missteps may have slowed the rise of the metaverse, but have no fear it is evolving and will gain substance versus what has mainly been hype to date. My son has been working with Midjourney, DALL-E and other AI models for some personal projects, pretty eye-opening. At the same time he’s drawing and painting – human craft, creativity and innovation will always have its space. And there’s no better circumstances for creativity and innovation to thrive than during challenging times. My money is on a new wave of exciting start-ups – Web3? AI? – being birthed from those that have been cast away by Google (12,000 jobs to be cut), Microsoft (10,000), Meta (11,000), Amazon (18,000)… Go well in 2023.
