We’re in new and uncharted waters of economic flux. Technology is streaking ahead, and consumer habits have become increasingly unpredictable. In response, the scientific world of data-driven marketing with tangible stats for ROI is extremely appealing. Organizations are strategically bolstering their lead generation efforts. This pivot towards performance marketing, characterized by its results-driven approach, has proven its salt during recent economic slowdowns and amplified revenue security. As digital marketing capabilities expand, several key trends and statistics are flashing great news – now is the time for both buyers and sellers to make their mark and real money. As a consequence, the industry experiencing a surge of interest from investors and acquirers; the ascent of digital marketing has outpaced all expectations.
We’re all aware of the digitization of our daily world, and companies aren’t slouching to refocus their marketing budget in line with movement in consumer trends. It follows suit revenue growth in the digital sector has far outpaced traditional marketing, intensifying M&A buyer appetite. In the US, the Digital Marketing segment is projected to reach $60 billion in total revenue by 2028, with a Compound Annual Growth Rate (CAGR) of 10.5% from 2023 to 2028, according to IBISWorld. In stark contrast, the US Direct Marketing segment is expected to see its total revenue decline to $10.1 billion by 2028, with an annualized rate of -4.0% during the same period.
In the UK and US we have the world’s most dynamic and advanced markets for digital marketing innovation; UK-based clients are some of the biggest spenders on digital advertising in the world, and have one of the largest digital ad inventories out there. Although considered a more elegant approach, Brand Marketing, which brings the artistic, elevated reputation, and storied heritage of Brands to life, doesn’t produce instantaneous stats proving its metrics are worth the effort. It’s the poetic slow burn compared to the current escalation in demand for fast and trackable results with lucrative consumer data and ROI figures.
A significant driver of the digital growth is the desire for performance marketing services tailored to specific niche markets. In an age where results matter more than ever, performance marketing agencies have emerged as champions of ROI-driven strategies. In 2023, a hefty 42.8% of total U.S. Digital Marketing revenue is derived from SEO services. This rapid growth has attracted numerous new entrants, resulting in a fragmented market ripe for consolidation. SEO has become a standout star in the performance marketing arsenal. With an average return of $22.24 in sales for every $1.00 spent, as reported by Forbes, it generates a consistent cash flow. Buy into PPC agencies for precision, too. If you’re not offering intuitive and smart SEO services, now is defintely the time to add this to your portfolio, aligned to web design.
Rising valuations for digital marketing agencies
Heated Valuations: Marketing services M&A valuations have stayed robust, surpassing the industry average. With an average purchase multiple of 12.8x EV/EBITDA from 2021 through YTD 2023, digital marketing agencies offer seriously attractive returns for investors.
Concrete ROI Tracking: Advanced measurement methodologies and technology-driven targeting techniques have made digital marketing more effective and transparent than ever before. With enhanced ROI tracking, as an investor, you can clearly assess how your hard-earned cash is performing.
Death of Traditional Marketing: Revenue growth in the digital marketing segment has consistently outpaced traditional marketing providers. The forecasted total revenue in the U.S. Digital Marketing segment is expected to reach $60 billion by 2028, showcasing the sector’s incredible growth potential. In 2023, Performance agency specialists accounted for the majority (57.4%) of total M&A targets, on track with 2022 trends for a strong growth trajectory. This substantial agency sales buzz is down to companies wanting ROI visibility and specialization from their digital marketing partners, and agency valuations are at an all-time high. Factors contributing to inflated valuations include limited customer concentration, margin strength, and subject matter expertise. It’s a good time to sell too.
For savvy investors and entrepreneurs, acquiring performance and digital marketing agencies is a potentially transformative move. Making strategic investments now will set founders on a path to future-proof their businesses.
Social Media Agencies Growing Budgets
Social media is now the cornerstone of digital marketing, with some companies and brands allocating a disproportionate share of their budgets, up to 70%, to platforms like Meta (formerly Facebook) and TikTok. However, this spending doesn’t always align with where users spend most of their time or provide the best return on investment. It’s wise for marketing agencies to balance their digital offering and get ahead of the curve. What’s up next?
Influencers: Go where the money flows… social influencer power continues to explode on all platforms, so acquiring expertise will provide your agency with an edge in harnessing that sought-after reach and audience connection all clients now demand, effectively. One standout example is PopReach’s purchase of OpenMoves, a digital marketing agency specializing in paid media, SEO, and social media services.
Jon Walsh, CEO of PopReach, emphasized the significance of this acquisition: “The opportunity to add a growing, founder-led organization in this area and to help them scale their business is a win-win for both our organizations.” This deal, valued at $7.5 million, reflects the industry’s recognition of performance marketing’s resilience and its ability to deliver a direct link to ROI. Both a safe and wise bet.
Future Proof with Strategic Investments In Marketing Agencies
Generative AI Martech: Artificial Intelligence (AI) is transforming life as we knew it… Generative AI Martech can streamline content creation, personalization, and customer engagement. Investing in AI-driven tools will revolutionize both efficiency and effectiveness. Buy, buy, buy!
Gamification Services: Return on ad spend (ROAS) on traditional in-app ads is declining. I’ve seen the stats. To counter this trend, agencies should take a leap into offering gamification services – future gamers will be demanding interactive and immersive experiences, even for ads.
Voice and Visual Search: With the rise of voice and visual search, focus on being ready to deliver content optimized for these channels, ensuring your clients’ visibility and relevance as the voice-search landscape evolves.
Metaverse Marketing Agencies
Metaverse Creative and Marketing: The metaverse represents the next frontier in digital marketing. By investing in metaverse development, including creative and intellectual property (IP) assets, as well as mastering marketing strategies tailored to what’s really still an exploratory space, you’re future proofing. At the risk of sounding dystopian, there’s always a chance society might gravitate towards a life lived through avatars to avoid real-world chaos. I’ll caveat that by saying the transition to a life lived inside the metaverse might take longer than some predict, but right now, Roblox is immense.
In-App Programmatic: In-app programmatic advertising offers precise targeting and better engagement within mobile apps. As mobile usage continues to soar, being in the in-app programmatic game makes long-term sense.
Investing in performance and digital marketing agencies is not so much a choice as a strategic imperative. The pay-for-performance model, remarkable ROI, robust valuations, clinical ROI tracking, and the industry’s growth trajectory all point towards the immense potential in this sector. For investors and entrepreneurs looking to make a wise and future-facing business move, the time is now to seize the opportunities presented by performance and digital marketing agencies. If you’ve been smart enough to build a digital agency, the valuations are punchy, and deals are readily available.
As the digital marketing landscape continues to radically climb, those who act decisively will find themselves at the forefront as the industry rampages through a transformative shift.
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Here at Capital A, our team supports all kinds of marketing agencies to both buy and sell expertise. Digital is our personal specialization. Our UK and US offices are working with a number of ground-breaking digital pioneers to create growth, scalability, and, for some of our founders, realize those exit dreams.