A new report finds the private equity world still hungry for digital marketing businesses. But how can agencies unearth some of that value? The report’s co-author talks us through the market.
SI Global’s second annual Private Equity Insights Report has been published. It reveals a continuation of private equity firms’ investment in marketing businesses.
The standout finding is a 21% year-on-year increase in investment activity by private equity (PE) firms into marketing, tech and consultancy businesses. That uptick follows a market downturn (of 55%) in 2023, but continues a broader pattern of PE interest in marketing companies since 2019. PE now accounts for more than a third of all acquisitions in the space, the report finds.
The biggest beneficiaries are digital, social and influencer agencies, which have received 50% of the total investment in the space over the last 12 months – a threefold increase from last year.
Want to go deeper? Ask The Drum
The focus is on new acquisitions, with 87% of new PE activity coming from first-time investments rather than reinvestments or bolt-ons. Speaking of bolt-ons, they fell by a massive 92% this year, indicating an appetite for organic growth in newly acquired agencies over ‘roll-ups’ (in which similar companies are quickly acquired to bolster the agency offering).
That marks a sea change in PE’s approach to investing in the sector: ‘buy and build’ has long been a core strategy of PE firms looking to find value in the marketing sector. Per the report, that era may be over.
Further evidence that the buy and build paradigm has hit a snag: PE funds are holding on to their agency assets for longer than expected. PE ‘exits’ have been slower to materialize, down 27% since last year. Firms in the space are largely expected to sell within a five-year window. This year, twice as many firms find themselves holding on to agencies beyond that window compared with 12 months ago, though a couple of recent deals still show the market operating as expected, like digital agency Croud going from one PE firm to another (LDC to ECI) after 5 years last October.
Funds, the report says, are nonetheless in “invest mode,” with 31% having made more than two acquisitions and 29% having made one or two over the last 12 months. Over a total of 221 transactions globally, the report finds over 50 PE houses actively acquiring in the space, with the market “still expanding.”
Roll-ups roll out
Private equity firms nearly always invest with a hope to see a profit quickly, from onward sale or IPO. Why, then, are they continuing to invest aggressively if they and their peers are failing to see the quick profit they hope for?
Tristan Rice, partner at SI Global and a co-author of the report, tells The Drum that part of the answer is simple: they’re waiting for better conditions to sell into. “A lot of these groups that bought in the post-Covid era paid quite high multiples. There was a big spike in M&A, a lot of competition and a lot of free money about, so multiples went through the roof… So when it comes to exit, they need very strong performance, because the multiples are a bit lower than they were when they invested; even though they built a bigger business, they might be exiting at a lower multiple than they invested at.”
The macroeconomic picture is also stalling exits. As Rice told The Drum back in April, many investors were hoping in 2024 that a low-regulation, low-tax, high-investment second Trump presidency might buoy the faltering IPO market. With tariff chaos and wider global trade shiftiness, “that is very much on hold still,” though Rice does note a whiff of recent optimism: “we’ve seen a notable uptick in new business inquiries and expectation of deals over the course of the year. We think this is going to be a busy year.”
Meanwhile, that stalled IPO market has kept it easy for PE firms to raise, with “a lot of private capital still looking for a home.”
And it’s worth noting that behind that uptick in investment is a shift towards smaller players, who can perhaps see a return on their investment more quickly: “The growth in fundraising has largely been in the lower market – businesses of, say, $15m to $30m in enterprise value”. For Rice, the market will have looked at some of the higher-profile ‘roll-up’ groups, where yields for PE companies may not have been as robust as expected, and thought, “these are not great success stories. Is this what the future buyer market wants to acquire? So there’s been a pivot away from these complex, multi-line roll-ups in favor of much more focused go-to-market strategies. That lends itself to smaller deals”.
As the market moves away from this roll-up paradigm, Rice says, a picture starts to emerge of which dishes are looking tastiest to those hungry PE bellies in 2025. Specialist shops in areas of clear commercial growth look good – not just in influencer and social, but in proprietary data and AI-fueled analytics (no surprises there – outside of PE, advertising holdcos have been acquisitive in this space too).
Will PE investment in agencies continue?
Marketing and digital agencies’ continued appeal to PE comes down to one thing above others, Rice says: disruption. “Disruption provides opportunities for growth,” he says. “We’ve seen huge disruption in the shift away from traditional to digital marketing over the last 15 years or so and we’ve not even scratched the surface of how AI is going to continue to disrupt that. For a lot of people, that represents as much of an opportunity as a threat.”
And the nature of the marketing business’s present disruption (most conspicuously AI) will only serve to make a certain kind of marketing business more attractive to this kind of investor, namely, tech-based businesses with strong talent around that tech. “Private investors are a little skeptical of businesses that are reliant on people, not just because they’re harder to pin down, but also because scaling a business that relies on people just gets harder and harder. Scaling a business that is reliant on tech is much easier. So the more that the marketing world shifts to technology, the more interesting it becomes from a proactive investment standpoint.”
As for how long the wider trend of PE investment in the agencies space will continue, Rice is optimistic, but warns that there are still plenty of unknowns to be revealed. “Private capital valuations are private. When a listed exchange goes up and down with the winds of the world, you know that. But with private investment in a company, they just say what they believe it’s worth and what they think the multiple is. So there are probably a lot of disguised problems in the market, and whether or not this trend of private equity flooding into this sector continues will probably depend on the outcome of secondary and tertiary exits and IPOs. If those are successful, then the private equity world will continue to invest. If they’re not, there will be a shift away.”
A more complicated landscape
New entrants are sign that there’s value in the sector, Rice says, but agencies and advisors alike are likely to be wary of those without a track record. “We’re talking to loads of funds that know absolutely nothing about the sector, but are trying to learn, trying to work out where the opportunities are,” he says. His firm tends to stick to “a small group of trusted investors” who have proved their bona fides in the space. “One of the peculiarities about this sector is its dependence on people and relationships. There’s a real danger of going with a fund that doesn’t understand that. The funds that have succeeded in this sector, like LDC, have realized they can’t be too interventionist here.”
So as investment continues, Rice says agencies exploring the PE route should remember that “the day one money is just the beginning. It’s what happens after that that becomes your overriding priority as soon as the money hits your bank account.”
Suggested newsletters for you
