IN DECEMBER 2008, AdMedia Partners, Inc. conducted its fifteenth annual survey of senior executives at leading advertising, marketing services and interactive marketing services firms on prospects for industry mergers and acquisitions in the year ahead. 

The survey was done amid a growing awareness that economic conditions in 2009 would be as difficult as any year in memory. Respondents were unanimous that a recession is under way, with one-third expecting it to continue throughout 2009 and another 13% anticipating an even 

longer slowdown. Nonetheless, respondents wereoutspoken that the current downturn would inevitably create unique opportunities for buyers and sellers, especially those companies with innovative business models in emerging marketing and media. 
 

Respondents expect overall advertising spending in 2009 to decline by five percent, impacting both independent agencies and large holding companies. Many newer agencies, especially online firms, are finding themselves at a critical juncture as the validity of their business model, strength of their management team and overall financial wherewithal are being severely tested, most for the first time. Notwithstanding these challenges, respondents expect five percent growth in interactive advertising spending as well as five  percent  growth in their own businesses. 
 

Even with a troubled economy, 60% of respondents expect to take M&A-related steps in 2009, only a modest decline from last year when 67% anticipated doing so. This outlook appears to reflect both consolidation opportunities for smaller agencies with cutting-edge business models or strategic client relationships and game-changing opportunities for larger agencies to merge in order to gain critical mass and reshape the agency landscape. 

Volatile financial markets will continue to affect the universe  of  buyers.  One-third of respondents expect M&A by strategic buyers to beup in 2009, versus more than two-thirds in last year’s survey. Publicly held marketing communications  companies have seen  their valuations cut nearly in half over the past six months, hindering their ability to be aggressive in the M&A marketplace. Similarly, only 14% of respondents predict industry M&A by financial 

buyers will grow in 2009, in contrast to 41% last year. The majority of financial buyers have been sidelined by frozen credit markets; however,a number of private equity players are sitting on large cash reserves, positioning themselves to act on attractive deals, albeit using less debt 

 

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