Don't be surprised if your favorite small or midsize company gets swallowed up by one of the big boys. The debt to positive equity ratio in the marketing industry continues to foster mergers and acquisitions in the space. Just ask Berkery Noyes. The independent mid-market investment bank will tell you M&A activity related to marketing rose 22% in Q1 2014, the largest quarterly rise in volume for the sector. This follows an 8% decline in the prior three-month period. Cash on hand could mean many more acquisitions this year.
M&A deals rose slightly from $25.1 billion to $25.8 billion in the quarter, though down from the $43.3 billion high in Q3 2013 high, per Berkery. Numerous partnerships in the first two quarters of this year like the one between IBM and Kenshoo could signal another spike in Q3 2013 (My prediction.) It becomes a question of whether the company becomes a big enough partner to stand on its own or gets swallows up by IBM or Oracle. Partnerships, to me, signal a possible acquisition in the future. Not always, but sometimes companies will use the partnership as a means to test whether they have compatible technologies and strategies.
The Berkery report released this week analyzes M&A activity in the Media and Marketing Industry in Q1 2014, and compares it with the past four quarters.
M&A activity in the Entertainment Content segment rose 14%. Strengthening its online video network, the Walt Disney Company's acquisition of Maker Studios for $500 million was the largest Entertainment deal during the quarter. Berkery explains that this transaction includes a potential earn-out of $450 million, bringing its total enterprise value to $950 million.
Despite Disney's giant deal, the highest value deal in the Entertainment segment's video game subsector was Zynga's acquisition of NaturalMotion Games for $477 million. Following five deals in 2012, Zynga completed just one transaction in 2013. The company makes known its interest in middleware and technology useful beyond developing the next big game, which becomes a different approach to M&A when compared with its 2012 acquisition of social game developer OMGPOP, the creator of Draw Something, for $180 million.
The research also points to Amazon's acquisition of Double Helix Games, and Yahoo's acquisition of Cloud Party.Yahoo-related Alibaba Group took responsibility for two transactions in Q1 2014. The ecommerce company acquired a 60% stake in television and movie producer ChinaVision Media Group, and digital mapping company AutoNavi Holdings.
A KPMG survey of more than 1,000 M&A professionals, investors and advisers suggest 44% believe M&A activity will become highest this year among technology, media, and telecommunications companies. Some 68% of the 148 executive in those industries anticipate their company or client to initiate at least one acquisition in 2014, and 73% think their own sectors will have the most M&A activity in 2014. Middle-market deals are expected to rule.