Mergers and acquisitions activity within the direct marketing industry was at a record high last year, according to New York-based investment banking firm Petsky Prunier. The firm tallied 550 transactions in 2004 among direct marketing, marketing service, and marketing technology companies generating an estimated $27.2 billion in transaction volume.
Service providers accounted for the plurality of the year’s industry deals—228, or 42%. Marketers, though accounting for the fewest number of transactions at 125, generated the highest dollar volume with $11.0 billion. Median deal prices were also up significantly industrywide, which Petsky Prunier attributes to heavy interest from private equity and venture capital firms and a favorable lending environment. “From a big-picture standpoint, an improving economy, capital market stability, and renewed CEO confidence to seek outside growth have provided a strong foundation for the current transaction environment,” says Petsky Prunier CEO Michael Petsky. “Additionally, accelerating industry dynamics, such as consolidation among marketing technology companies, a squeeze on midsize marketing service providers, and the growing need to build multichannel sales outlets are forcing both financial buyers and strategic players alike to bid feverishly for choice targets.”
Looking ahead through 2005, Petsky Prunier identified 10 industry trends to watch for:
1) Growth of interactive advertising. Interactive marketing services accounted for 12% of industry M&A activity in 2004 , and Petsky Prunier expects that percentage to increase this year.
2) Consolidation among cross-channel marketers.
3) Business-to-business marketers seeking back-end integration and wholesale distribution channels.
4) Back-end services providers looking to offer front-end services.
5) Traditional media once again in pursuit of profitable Web content.
6) Vertical marketing and application solution providers gaining ground. Marketers expect their service providers to provide “solutions” – either solutions to problems they have already identified or solutions that anticipate their needs.
7) Resurging importance of public relations, product placement, and branded entertainment as marketing channels.
8) Acquiring companies as a back-door means of building a sizable database.
9) Consolidation among printers and lettershops, resulting in tighter demand and greater profitability.
10) Midsize service providers will feel the squeeze. Larger service providers offer clients enterprise-wide solutions and a global presence. The midsize providers will either acquire and merge with other midsize firms or fall prey to their larger rivals.