Merger and Acquisition Activity for Internet Marketing Firms To Be Strong in 2006 Finds AdMedia Partners Market Survey

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Mergers and acquisitions for buzz, viral, guerilla and event marketing companies, as well as database marketing and customer relationship management (CRM) agencies to also be strong

It is widely recognized that marketers must look beyond traditional advertising to reach consumers, and right now internet marketing, experiential marketing, and CRM are capturing a sizeable share of both industry budgets and buzz

According to a new market survey by investment bank AdMedia Partners (http://www.admediapartners.com), merger and acquisition activity for internet marketing firms will be remarkably strong in 2006. AdMedia’s survey also found that mergers and acquisitions of “experiential marketing” companies – which includes buzz, viral, guerilla and event marketing firms – as well as database marketing and customer relationship management (CRM) firms, will also be strong this year.

The survey – Merger and Acquisition Prospects for Marketing Services and Internet Marketing Firms – shows that the valuation multiples that respondents anticipate for marketing services firms increased to 6-7 times EBITDA (pretax profit) from 5-7 times last year. The most notable increase in valuation parameters was seen for internet marketing firms, with anticipated multiples of 6-10 times EBITDA, up from 5-7 times last year. By contrast, valuation multiple expectations for traditional advertising agencies have held at last year’s level of 5-6 times EBITDA.

AdMedia Managing Director Abe Jones says, of those who identify as prospective buyers, 54% expect to complete an acquisition during 2006, up slightly from 51% who thought they would do so in 2005. In a more dramatic shift, 42% of those who identify as prospective sellers expect to sell all or part of their businesses in 2006, vs. 25% who thought they would do so last year.

While survey respondents are most optimistic about strong merger and acquisition activity in internet and experiential marketing, Jones noted that a majority also project moderate to strong merger and acquisition activity in database marketing and CRM, marketing and strategic consulting, specialist advertising, direct marketing, media buying services, corporate identity, design, sales promotion and public relations. The only sector in which a majority (55%) of respondents expect deal-making activity to be weak is general advertising.

“It is widely recognized that marketers must look beyond traditional advertising to reach consumers, and right now internet marketing, experiential marketing, and CRM are capturing a sizeable share of both industry budgets and buzz,” said Jones. “It follows that deal-making activity will be particularly strong in these sectors.”

In fact, 69% of respondents said they are considering entering or expanding their presence in internet marketing this year, up from 64% in 2005. Nearly half (46%) hope to grow in experiential marketing, a sector which replaced event marketing in the survey this year. Only 28% of respondents said they were considering entering or expanding in event marketing in 2005.

As has been the case throughout the 2000s, the vast majority of respondents believe the current merger and acquisition climate is favorable for buyers, but for the first time in five years, a majority (52%) would now advise sellers to act as well. “Although a sizeable minority would still urge prospective sellers to hold off for higher multiples, a growing percentage think healthy valuations and available financing make this the right time to sell,” said Jones.

Respondents to AdMedia Partners 12th annual survey were made up of companies that operate in a variety of advertising and marketing services sectors. 52% are marketing services firms, 30% internet marketing firms, 26% ad agencies and 9% holding companies. 89% are private companies and 11% are public companies.

To access a full length copy of the report, please visit the AdMedia Partners website: http://www.admediapartners.com.

About AdMedia Partners

AdMedia Partners is a leading boutique investment bank that provides middle market mergers and acquisitions advisory services to advertising and marketing services, media and publishing, and related internet businesses. Founded in 1990 and located in New York City, the firm has completed over 100 transactions since 1999.

Selected transactions completed by AdMedia Partners in the last seven months include:

  • Representing Medical Broadcasting Company, the largest independent interactive healthcare agency, in its pending acquisition by Digitas.
  • Representing Bridge Worldwide, an interactive relationship marketing agency, in its acquisition by Wunderman, a unit of WPP Group.
  • Representing 360i, a leading provider of search engine marketing services and technology, in its acquisition by Innovation Interactive, LLC.
  • Representing Dynamic Logic, the leading independent marketing research company, in its acquisition by Millward Brown, a unit of WPP Group.
  • Representing Creative Domain in its merger with Trailer Park to form one of the largest providers of diverse entertainment marketing services in Hollywood. The transaction was backed by a financial commitment from Lake Capital.
  • Representing Dittus Communications, a Washington, DC based public affairs firm with legislative and regulatory expertise, in its acquisition by Financial Dynamics.
  • Representing Federalist Group, a Washington, DC based government relations firm, in its acquisition by Ogilvy Public Relations Worldwide, a unit of WPP Group.
  • Representing Grupo Editorial Expansión, Mexico’s second largest magazine publisher, in its acquisition by Time Inc., a subsidiary of Time Warner.
  • Representing Gruner+Jahr USA in its sale of Inc. magazine and Fast Company magazines to Mansueto Ventures LLC.
  • Representing Taylor Rafferty, an independent global investor relations and financial communications advisor, in its sale to Xinhua Finance, China’s premier financial services and media company.
  • Representing Interweave Press in its acquisition by Aspire Media, a newly formed magazine entity backed by private equity firms Frontenac Company and Catalyst Investors LP.

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