Why E-Commerce Agencies Are Back On Buyers’ Radars

Investors and acquirers are showing renewed confidence in e-commerce agencies and service providers, with the most recent reporting period – 2H24 – seeing deal numbers bounce back to reach the second-highest level on record for this space. 

This resurgence has come in the wake of a fairly sluggish period for Digital Commerce as a whole.  As Hampleton Partners’ Sector Principal Ralph Hübner observed in our most recent market report on the sector, while Digital Commerce M&A numbers have been rising, the pace has been “kept in check by the lingering effects of recent macroeconomic headwinds and the stringent requirements of acquirers less willing to take risks in a volatile market environment”. 

Such pressures were certainly felt in the Agency and Service Provider subsector, with transaction volumes and median EBITDA multiples entering a notable decline between 1H23 and 1H24. This slump was perhaps to be expected, given the challenges and uncertainties agencies have faced as they’ve raced to recalibrate and find their footing while automation improves at a breakneck pace. 

In order to remain competitive, agencies and service providers have had to invest in the latest AI solutions and in the upskilling of staff, with profits taking a hit in the process. On top of that, they’re having to overhaul their strategies and re-assert themselves in an era where marketing content can be created, deployed and managed by AI, and where clients are increasingly willing to in-house everything from web production to advertising. It should also be noted that, just prior to AI becoming a major factor, client groups in some major verticals, notably automotive and fashion, had already been cutting their marketing budgets, putting pressure on agencies which were highly dependant on specific verticals and a few big clients. 

Speaking at the start of 2024, Niall Dowling of marketing agency Atomic acknowledged the scale of this challenge, saying that he and his peers must “learn to sing for our supper again. There’s less money around and clients and end-customers are (rightly) a bit more sceptical and a bit harder to convince.” 

Returning to now, our latest M&A data indicates that the re-investing of funds into the latest technologies has paid dividends for some agencies and services providers by rendering them ripe for acquisition by financial buyers. Marketing companies and networks are also feeling the imperative to make strategic acquisitions to swiftly boost their capabilities and stay ahead of the curve, whether it comes to creative talent (more important than ever in the AI age) or specific client concerns such as social commerce, CRM, and connected commerce (which integrates online and offline retail experiences).

Let’s look at some notable transactions which have formed part of the recent consolidation wave, starting with one which has fundamentally re-shaped the advertising and marketing landscape.

Announced in December, the acquisition of Interpublic by Omnicom is one of the most significant deals to have been struck in any tech sector, transforming the “Big Four” of the advertising industry (WPP, Publicis Groupe, Omnicom and Interpublic) into a new “Big Three”.

The creation of a new industry colossus boasting a sprawling asset suite and the ability to leverage greater buying power is certainly a milestone for the industry. However, it remains to be seen whether it represents a meaningful pushback by the legacy advertising space against tech giants such as Meta, Amazon and Alphabet, which account for so much of today’s ad spend. 

Speaking of Interpublic, the company sold off the influential advertising and digital design agency R/GA in March, with R/GA’s senior management figures partnering with private equity firm Truelink Capital to take the agency private again. 

The move has been framed as a savvy response to the rapidly evolving media landscape, with R/GA’s chief executive saying that “agencies will struggle to make the pivot in this new age, especially at a time when they’re operating within complex agency structures, saddled with legacy business models.” As well as restructuring its teams to make them more agile, R/GA is also taking the AI bull by the horns by announcing a Truelink-backed USD 50m fund to invest in new technologies and grow the agency’s AI capabilities.

January saw the purchase of April Six, a communications agency specialising in the tech and science sectors, by consulting and marketing firm Marketbridge. April Six’s tech expertise, together with its formidable client portfolio which includes the likes of Amazon Web Services and Ernst & Young, made it a ripe acquisition target. 

The strategic transaction, which will bolster the end-to-end marketing solutions available to Marketbridge’s clients, was hailed by April Six’s founder as the right move at the right time, “with so much shifting in the communications sector”. It is emblematic of the wider consolidation wave that has been occurring in this space since the latter half of last year. 

In March, marketing agency Brunner announced its purchase of Rakuten Advertising’s Performance Solutions Group. Rakuten is an affiliate marketing services provider whose Performance Solutions Group encompasses its paid search and social teams. 

Its acquisition is intended to give Brunner access to more clients in retail, travel, finance and hospitality, as well as allowing Brunner to provide affiliate marketing opportunities to its clients via Rakuten’s expansive platform. As with the April Six/Marketbridge deal, this is a prime example of how marketing companies are embarking on leveraging M&A to keep up with the changing landscape.

With Digital Commerce being one of the tech sectors our analysts specialise in, we will continue to monitor the M&A trends impacting this space, and our Sector Principal Ralph Hübner would be delighted to speak to you about the opportunities for your e-commerce company.   

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