The instant and constant connectivity offered by our mobile wares enables individuals to consume, interact and engage with the Internet at a moment’s notice. Thanks to high-speed connectivity and accessibility, we can connect to any given website and engage with products and services one-on-one. The ability to connect is a phenomenon the IT world began to witness in the late 90’s as the internet and web companies opened new doors for corporations — and now connectedness is coming into the next new phase. Today’s internet experience is intimate; its one that can’t easily be replicated in any other medium. This is where branding meets enterprise computing – both internally and externally. Corporations, now more than ever, need to interact and engage with their customers in order to remain relevant in a constantly changing, increasingly social world – and many of them need outside help. For this reason, the digital agencies catering to these technologies are being acquired one after another.
M&A activity for digital agency deals witnessed significant increases in 2011, mirroring the growth occurring in overall deal activity for the information technology industry. (Stay tuned for a Signal Hill’s Q4 2011 year-end reports, detailing metrics and other relevant deal information.)
Deal Totals & Enterprise Value Metrics for Digital Agencies, 2010-2011


As seen above, the total number of digital agency transactions increased to 67 in 2011, representing a 63% jump compared to 2010. Even more remarkable, median revenue multiples for the subsector increased 21% to 1.7x during the same period. This number represents a healthy premium compared to typical Services multiples of 1.0x, and demonstrates the niche value digital agencies bring to the IT Services sector. Enterprise value (EV) totals for 2010/2011 reflect a similar trend: in 2011, digital agency deals totaled approximately $1.2 billion, a 48% increase in total enterprise value year-over-year, while median enterprise value increased to $43 million, a whopping 143% rise.
Over the past year alone, digital consulting firms such as Dentsu, WPP plc, and Publicis Groupe have collectively made 14 acquisitions in the space. Moreover, even traditional services companies, such as Deloitte, are expanding and gaining expertise while diversifying their consulting offerings. Most recently, Deloitte acquired Übermind, a company that designs and develops mobile phone applications, as well as provides mobile strategy consulting services.
This robust digital agency M&A growth can be attributed to a number of things, including the upswing in the global economy and the cash stockpiles companies have been hoarding, not to mention the pace with which cloud deployment is taking off. Last May, Publicis acquired Rosetta Marketing Group for $575 million (2.6x TTM revenue). The deal provided Rosetta, an interactive and digital agency with consulting and strategic services offerings, with not only a new, enviable revenue stream (it expects 35% of revenues from digital sources in the next three years), but a compelling opportunity to transform into an agency for the future, with stronger capabilities in digital, technology, marketing and consulting in digital services. Just last month, ICF International paid $100 million (1.8x TTM revenue) to acquire Ironworks Consulting, a Signal Hill client. Similar to Publicis, Ironworks provided ICF with enhanced breadth and depth of service offerings in implementation, interactive media and portal content management, and social & mobile media and a rapidly growing revenue stream (≈15% growth projected in 2012), ultimately creating a leading, end-to-end digital/interactive firm.
Companies are increasingly looking at the cloud for viable and cost-effective solutions and as such, need experts / consultants to design, develop and build large-scale systems (portals, interactive, mobile, social and marketing technologies) that link into existing enterprise processes and systems. The diverse and differentiated offerings available in the cloud require enterprises to hire experts or utilize consultants to ensure things run smoothly. Digital agencies today need to cater not only to the traditional world of integrating large front-/back-end systems, but also to the growing interconnectedness of social media and mobile platforms. We expect all of these factors will continue to drive M&A in this area, as growth in the cloud, social and mobile show no signs of slowing.
– Ahmed Mirza, Financial Analyst