The Importance of M&A Strategy for Growth Planning

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Incorporating a merger and acquisition (M&A) strategy can drive growth in the marketing services industry by leveraging changing market dynamics, increasing demand for digital services, and evolving client needs. Athru Partners, a boutique M&A consultancy, specializes in assisting independent business and marketing services firms with growth strategies, fund-raising, and divestiture opportunities. Key drivers such as private equity firms, consulting firms, and the shift to digital emphasize the necessity for M&A involvement in growth plans.

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Why An M&A Strategy Should Be Part of Your Growth Plans October 4th 2021

About Athru Partners Athru is the Gaelic term for change Founded by Bill O Donnell and David Sheehan in 2018 Athru Partners (www.athrupartners.com) is a boutique M&A Consultancy serving clients nationwide. Athru focuses on independent business services and marketing services firms to help their founder/owners with growth strategies and planning (buy or build), fund raising or divestiture opportunities.

M&A Overview The Numbers. Growth Driven by M&A M&A deal volume activity in the Marketing Services industry has increased 22% in H1 of 2021 over 2020. There were 602 reported deals in 2020. In H1, 2021 there have been 369 transactions. Two out of every four deals are driven by Private Equity Firms.

M&A Overview Key Drivers Marketing/Advertising Transactions Driven by a Changing Set of Buyers Private Equity Firms Consulting Firms. (Accenture) PE- Backed Marketing Services Holding Companies (Stagwell Group, Kantar) Specialty Groups ( S4 Capital, Hero Digital) Independent Agencies Looking to Add Services/Clients/Categories/Geography Big 6 Ad Holding Companies

M&A Overview Key Drivers Challenges in the Agency Business: Flight to digital is driving the marketing services sector. Covid 19 has accelerated transformation to greater emphasis on digital as e-commerce and digital media consumption have increased substantially during the pandemic. This in turn, has created even greater need for agencies to provide key services like performance media and marketing, enhanced data and analytics, social media and content generation.

M&A Overview Key Drivers Challenges in the Agency Business: Growth Shrinking Account Tenures Margins Once 30%, Now Less than 20% Competition Management Consultants, In- House, Talent Firms, Other Non-Traditional Firms Talent Strong Demand/Reduced Pool/Highly Transient Services- Changing client demands/needs

Strong Interest in Marketing Services Favorable industry growth projections and increasing valuations for marketing services firms. Heightened levels of client demand for digital transformation, precise marketing solutions and ever- increasing demand for personalized content at scale, advanced analytics and tracking, CRM and marketing automation know-how. Robust industry growth tailwinds in categories like healthcare, financial services and e-commerce are expected to further support buyer appetite for marketing services firms focusing on serving these areas.

Strong Interest in Marketing Services Strong interest from PE firms who have more capital than ever to invest. More participation and interest by Strategic Buyers- independent agencies, boutique holding companies, etc.

Does M&A Make Sense For Your Agency Though you may never decide that making an acquisition is right for you and your business, knowing the benefits of a potential buy-side transaction will allow you to evaluate more objectively the Buy vs. Build decision. It is a fact that every owner will exit at some point. The goal is to be ready for that transaction; even if you opt for options other than an outside sale.

Benefits of Buy Strategy Immediate impact to revenue/cash flow Provides opportunity to re-invent your service model Access to : New Clients New Categories New Geography New Talent Culture/brand boost

Considerations Related to a Buy Strategy: Vision why do you want to do the deal. Value Proposition how does it impact how existing and new clients will view your agency. Financial Model what financial impact will the acquisition have on your agency beyond Revenue. Profitability, Expenses Pricing Model, etc. Synergies where are opportunities staffing, offices. Leverage how can you best leverage your cash and resources with the right deal structure.

Considerations Related to a Buy Strategy: Arbitrage can you acquire at a lower multiple and create value that results in a higher multiple. Due Diligence needs to be broad and deep. Look for roadblocks or deal killers before you go too far in process. Ease of Cross-Selling- Does it seamlessly fit. Leadership Alignment- Can current leaders embrace and champion new opportunity.

The X Factor Human Capital Due Diligence Build a Human Capital Balance Sheet Determine the Structure of the New Org Establish How Conflicts Will be Resolved Make Redundant Personnel Decisions Quickly Establish a Formal Plan for Combining Cultures

Buy Strategy and Agency Valuation Factors That Impact Business Valuation Don t Change: Longevity of the business Types of revenue streams Composition of accounts Stability of employees Industries served Services offered Packaged IP and/or technology Revenue/Profit

Conclusion short term stability, Only 29% of Ad Executives say they have a strategy in place to deal with new normal. Independent Agencies Need to Constantly Balance: Short -term stability Disruptive growth opportunities Long -term valuation