Marketing Services Market Update – December 2024

Acquirers Prioritize Performance-Based Offerings in the Marketing Services Market

Capstone’s latest Marketing Services Market Update reports that the Marketing Services market has exhibited significant resilience year to date (YTD) despite facing several challenges. While Google’s (Nasdaq:GOOGL) Privacy Sandbox initiative threatened the sector in the first half of the year, tightening marketing budgets have produced an environment in which return on investment (ROI), performance optimization, and attribution are paramount. Of note, marketing budgets have dropped from an average of 9.1% of company revenue in 2023 to 7.7% in 2024, according to Gartner’s 2024 CMO Spend Survey. Business executives have increasingly demanded sales conversions, often suppressing marketing budgets until higher spend is warranted. However, merger and acquisition (M&A) volume gains and public equity returns have materialized to date as sector participants have demonstrated an ability to adapt to this stark reality. Although technology-enabled marketing services providers have been well-positioned in the M&A market YTD, continuous innovation will likely dictate clear winners in the long-term.

M&A volume in the Marketing Services market has reached 407 transactions announced or completed YTD. This marks a healthy year-over-year (YOY) increase of 14%. In comparison, total transaction activity YTD in the U.S. and the broader Business Services industry has registered YOY declines of 14.2% and 1%, respectively. Strong sector deal flow has been primarily driven by strategic and financial buyer appetite for high ROI, high attribution performance marketing capabilities, particularly via digital channels. Strategics have continued to account for the majority of sector deals to date, led by private strategics vertically integrating middle market competitors. Driven by elevated dry powder levels and limited partner pressure to generate returns, sponsors have maintained their presence in the space. Although the Syndicated Loan market has shown signs of softening, financial buyers in the sector have continued to prioritize add-on deals to bolster portfolios with technology-enabled service offerings. Private equity platform deals will likely rally through year end and into 2025 as transaction financing hurdles ease.

The Digital Marketing segment has continued to lead M&A activity in the Marketing Services market, accounting for 44.2% of transaction targets YTD. However, deal flow in the segment has fallen 2.2% YOY, likely due to attribution concerns with Google’s Privacy Sandbox initiative. Segment M&A volume is predicted to rebound as those concerns have been largely mitigated. Sponsors’ fervent acquisition appetite in the segment is also anticipated to buoy activity. Notably, digital marketing providers have comprised more than half of private equity targets YTD.

Also included in this report:

• How average purchase multiples in the Marketing Services market have fared compared to historical levels and the broader Business Services industry.
• A breakdown of Google’s Privacy Sandbox initiative and how the company’s decision to retain third-party cookies has impacted the sector.
• How sector participants have leveraged artificial intelligence (AI) to boost productivity and performance amid depressed marketing budgets.

Capstone Partners’ Business Services Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the Marketing Services sector. Our team partners with leading mid-to-large sized businesses that serve growing end-markets.

For more information on the Marketing Services Market trends featured in this report or to speak with one of our Business Services M&A Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today.