We highlight some of the main takeaway points from Ciesco’s and Bird & Bird’s ‘2020 Global M&A Review and 2021 Outlook‘ report (the Report), which you can find here, summarising the key players and main sector trends of 2020 and what themes investors should look out for in 2021.
Who were the most active buyers in 2020?
There were some main players among the 2020 buyers, but there was admittedly a considerable dip in M&A compared to the 2019 statistics, primarily due to the lack of predictability and thus an inability to accurately valuate target companies.
The ‘Big 6’
The ‘Big 6’ holding companies, which include the likes of Dentsu, WPP and Havas, kept their focus not on expansion or taking risks on new investments outside their usual expertise, but on future proofing and strengthening the portfolios they already had. The six companies combined made a total of 15 acquisitions in 2020, 6 of these being carried out by Dentsu (which was the only company out of the six to make it into the top 10 buyers of 2020 listed in the Report). Common targets include data automation companies and marketing automation consulting services companies. What should be noted is that the ‘Big 6’ seem to no longer be the automatic ‘go to’ for possible sellers in the digital media sector, with consultancies such as Accenture, EY and PwC being able to offer would be sellers the same (if not better) packages due to their strong capabilities in the digital, technology and industry specific consulting services. Accenture in fact took the number one spot of the top 10 buyers of 2020 as stated in the Report, focusing on its ‘strategy to acquire specific capabilities and skills to enhance innovation, transformation, cloud computing, data and AI expertise for their clients’.
Technology company Twitter did well, acquiring 7 companies in 2020, including the ‘more fun’ Zoom alternative Squad. It notably focussed its investments on performance advertising companies and AV communications advertising. Of course, Salesforce stole the limelight out of the technology companies with its $27.7bn acquisition of Slack Technologies, the workplace software company. This beat the $26.2 acquisition of LinkedIn by Microsoft in 2016.
2020 was also noticeably a slow year for the likes of Facebook and Alphabet (Google’s parent company), who were not only stifled by the effects of COVID like their competitors, but were also forced to be more careful due to the anti-trust and anti-competition law regulatory pressures they have been facing for ‘monopolising’ their relevant sectors.
Private Equity Funds
Private equity funds however, paved the way in 2020, making up 37% of the total deals in the sector and pushing over the $118.9bn mark since 2016. Notably, these deals were of smaller values, but this means more financial power ready for this coming year to be invested. Acquisitions made by funds such as Providence Equity, who were singled out in the Report as one of the key private equity firms of 2020, has highlighted the huge focus on e-commerce and AdTech platforms, representative of the current consumer climate.
Which sectors are leading the way?
As stated in the Report, the digital media sector boomed this year, with 234 deals (2 more than last year). This of course has been due the effects of COVID, which has forced even those players previously reluctant to embrace technological changes to accept defeat and invest in technology that makes them more easily accessible and user-friendly to the everyday consumer. This can be seen most clearly in the e-commerce sector.
E-commerce has seen huge growth as traditional brick and mortar retail shopping ceases to be relevant, and with increased use of e-commerce there is an even greater need to know what consumers want. Companies are looking to ‘future proof’ their business, investing in technology that allows for better consumer analysis and provides insight into consumer behaviour. WPP (another of the ‘Big 6’) acquired London based behavioural analytics company Sandtable and Providence Equity acquired e-commerce provider Assembly, which provides services such as tracking digital sales and the conversion of clicks to sales data in real time.
With e-commerce also comes a huge push on AdTech platforms, and specifically the automation of buying and selling of advertisement. Hence the likes of Dentsu this year acquired a marketing automation consulting service agency, Digital Pi.
E-commerce advertising means social media marketing which in turn means social media influencers. Marketing influencer platforms are therefore growing exponentially to increase their capabilities in influencer discovery and campaign management, providing platforms for hundreds of thousands of verified influencers and brands to work together. This can be seen in recent acquisitions such as Impact Tech acquiring Activate, the American provider of influencer marketing technology in order to build their social media consulting capabilities.
Since the closure of bars and restaurants, consumers are also looking for other means of entertainment, which explains why the video gaming industry made up to 44% of the digital technology targets of 2020. Microsoft’s game publishing arm Bethesda Softworks acquired ZeniMax Media. Furthermore, due to cancellation of sporting events, e-sporting platforms have become key targets, with the likes of Nicecactus acquiring the e-sports tournaments organisers Glory4Gamers and strengthening their e-sporting presence internationally. This is set to be a huge trend for 2021 as consumers look to replace their sporting hobbies.
What is on the 2021 agenda?
2021 is set to be a year for growth in the digital, media and marketing sectors. As the Report points out, due to the low quantity and lower value of deals generally across the sectors, companies this year have a lot of funds to spare, and so are keen to make further investments in 2021. This drive in competition will result in higher bids, which is good news for the digital technology targets.
E-commerce will continue to thrive, as the exacerbated online purchasing habits of consumers are now unlikely to change in 2021. Companies will continue to look for ways to make their online sales and marketing more efficient.
It is also noted that, with the range of competing brands out there, more consumers will be deciding on their choice of retailers and providers based on how a company’s ethos and ethics aligns with their own. Companies and providers will therefore need to be able to offer an ‘all round more ethical business and embrace social and environmental responsibility‘.
Overall, the dips seen in the 2020 M&A statistics were expected, but the 2020 highlights mentioned above offer encouragement and excitement for the year ahead. 2021 should provide investors with more certainty and target companies with more opportunities for growth.