The agency market continues to show signs of growth and M&A activity. Driven by digital transformation and economic fluctuations, much of the forward-looking trends are a continuation of what the industry experienced over the last year. For example, the strong appetite for digital services and tech-enabled delivery are driving both agency revenue and strategic enterprise value.

Estimated to reach nearly $465 billion by 2027, our industry continues to demonstrate strong growth … which can be a leading indicator for M&A interest and consolidation activity. Agencies with durable revenue profiles and a proven ability to deliver digitally remain attractive, but there are other emerging factors for agency principals to consider:

1. Digital Proficiency as a Value Driver

In 2024, digital prowess is more than a competitive edge to win business; it’s a valuation booster. Agencies adept in digital marketing, analytics and AI are garnering high interest in the M&A arena. A digital-first agency profile is well positioned to attract strategic and platform buyers who view the underlying talent, delivery models and competencies as a high-value bet on the future.

2. The Consolidation Wave

As a sector, marketing services is experiencing consolidation. Larger entities are continuing to acquire specialized agencies to diversify their service portfolios and enhance their ability to capture and expand brand budgets. This trend offers both challenges and opportunities for niche agencies aiming to position themselves as attractive acquisition targets.

Active buyers from large agency networks are executing on a thesis of building bigger, more integrated entities. For agency principals looking to sell, this could mean increased competition and potentially higher standards for attracting the larger conglomerates who seek end-to-end and full service capabilities.

However, this trend also widens the niche opportunity for specialized agencies. As larger networks focus on financial and operational efficiency, there’s a growing demand for agencies that deliver creative and specialized work within a particular vertical or customer profile. This focus can help position independents as attractive acquisition targets for larger agencies and networks seeking to expand their capabilities and wallet share within a segment.

“…the strong appetite for digital services and tech-enabled delivery are driving both agency revenue and strategic enterprise value.”

3. Economic Influence on M&A Activities

Economic conditions, including the cost of capital and overall market and consumer confidence, play a pivotal role in M&A activities.  According to PwC’s Global M&A Industry Trends for 2023, the year began with a cautious M&A outlook, influenced by recession fears and rising interest rates. These economic conditions have led to a more challenging environment for dealmakers, with deal volumes declining and a greater emphasis on alternative funding sources.

For agency owners considering a sale, this means navigating a more complex market. The tight financing conditions and heightened scrutiny from buyers make it essential for sellers to be operationally prepared for the sale process. This readiness includes having an operating model that leverages your strengths and also addresses potential gaps that impact your firm’s value. 

In this buyer’s market, smaller, mid-market deals are driving the norm. While larger transactions may be more transformational, they face greater challenges in the current financing environment (not just at the time of purchase, but with the capital required for post-integration and working capital to execute the combined businesses). 

Independent agency principals will be rewarded for focusing on the key areas of value creation within their firm that drive stable and predictable financial performance.

4. Premium Valuations for Standout Performers

In the current environment, performance matters. Agencies demonstrating robust growth, particularly through digital execution, are likely to garner more strategic interest. Additional specialties, including crisis communications or employer branding, have also gained steam from potential platform buyers with “add-on” interests to widen their capabilities and addressable market. 

Enterprise value will continue to be influenced by the company agencies keep. The client portfolio and customer profile matter to potential buyers, with certain sectors yielding more interest and value than others. Examples include pharmaceutical, fintech, health tech, and home services clients that operate in high-growth segments of the economy.

5. Emerging Technologies as Deal Catalysts

Emerging technologies, particularly AI, are increasingly becoming key factors in the valuation and attractiveness of agencies. While early and undefined, the ability to leverage AI for predictive analytics, targeted engagement, and enhanced customer experiences become attractive to larger entities who may still be in the exploratory phase of deploying new technology. 

For agency CEOs, demonstrating the adoption and efficacy of tech-enabled performance (either revenue growth or operational efficiency) can significantly boost the agency’s appeal to both traditional and adjacent buyers. In short, demonstrating the systems, talent and client engagement from emerging tech is an additive to the valuation process. 

In 2024 and beyond, our industry will continue to experience the tailwinds of tech and consolidation, but may also encounter economic headwinds that drive the macroeconomic levers of M&A activity. For agency owners and leaders, understanding these trends will help inform and strategically prepare you to improve your positioning and attractiveness in a competitive market.

[1]Advertising Agencies Global Market Report 2023