• by Laurie Sullivan  @lauriesullivan, December 15, 2010

The ad industry and media companies should brace for a wild ride next year. Companies expect merger and acquisition activity to rise in 2011, with between 78% and 86% expecting M&A for content and services, respectively, to come from strategic buyers and between 63% and 68% from financial buyers such as equity firms and investors, according to findings from an AdMedia Partners study released Wednesday. About fifty-eight percent of respondents think the economy will grow stronger in 2011, compared with 2010.

Financial buyers, including private equity firms and investors, expressed a strong interest in investing in online companies. Sixty-two percent want to explore information and database publishing and online media, and 54% will look into social marketing and marketing technologies.

Respondents to AdMedia's 2011 Merger and Acquisition Prospects for Media, Marketing Services and Digital Marketing Firms survey have a positive outlook on growth prospects of their own businesses -- with a median expected growth rate of 13% in 2010, up 10% from last year. In fact, 29% of respondents expect their own businesses to grow more than 20% in 2011.

While companies believe their own business will grow, they also believe competition will continue to increase. When asked where they were seeing newcomers entering the markets, 68% of service firms suggest new competition would come from marketing technology companies, and 48% from content companies. Twenty-nine percent of services firms indicated an interest in developing or acquiring content development or ownership in 2011, while 40% of content firms expressed a desire to develop or acquire marketing services capabilities.

A majority of respondents in the services sector see new entrants in their market from the marketing technology sector, and almost half from the content and media industry. The rising need for digital media channels and convergence of marketing, media and technology will continue to evolve business models, and only 38% of respondents from the content sector believe online content companies have developed a sustainable business model.

"The perception of increased convergence and the lines between marketing, media and technology become more muddled," says Seth Alpert, managing director at AdMedia Partners. "Nearly half of the marketing services firms think content companies will compete against them, and others think the technology guys are coming after the services guys."

The money from investments will come from "significant growth" in the number of private equity firms interested in marketing services, Alpert says. Investments will weigh more toward digital after so many high-profile failures this year in traditional media. Second, traditional buyers have weathered much of the storm and company balance sheets are in better shape, so equity investors have come back to the market. And finally, more offshore companies -- particularly Asian companies -- have begun to acquire U.S. companies. Alpert points to Dentsu Group's acquisition of Innovation Interactive.

And it's no surprise that a significant number of survey respondents commented on the growing importance of social, mobile and location-based media and related services. Not only were these sectors at the top of the list to acquire or develop, but more than half of content providers responding to the study distribute content using mobile devices, and nearly one-third use tablets.

In fact, more than half -- 59% of respondents in the services category -- are considering either developing or acquiring analytics and optimization capabilities. As the use of social networks and connected devices continues to proliferate, marketers are scrambling to add capabilities to communicate with consumers, prompting 44% of respondents to express an interest in increasing their presence in social marketing and 41% in mobile marketing.

Will content remain king in 2011? Seventy-three percent of respondents supporting content suggest they will take on custom content and 63% note the desire to expand into user-generated content. Approximately half of respondents expressed an interest in acquiring or developing capabilities in mobile, blogs and online video.

This year, AdMedia added a new question to gain better insight into how media firms will distribute content. All respondents to this question use the Web as a distribution vehicle. Not one relies on print alone. Only 16% use Web only, while 61% use the Web in combination with another digital platform such as tablets or mobile. The largest group -- 24% -- now uses a combination of Web, print, mobile and tablets to distribute content.