European marketing services agencies are more likely to recover than companies in other sectors of the digital services market over the coming year, according to a new study. Optimism due to the advent of AI has prompted companies to actively enter the M&A market to increase production capacity.
Macroeconomic uncertainty and increased competitive pressures have made 2023 a challenging year for digital marketing companies. Rampage inflation is squeezing profits for companies across all industries, putting enormous pressure on advertising budgets for many companies, especially U.S. technology companies, which are the core customer base of digital marketers. . In the UK, eMarketer research found very limited growth in digital ad spend across all industries except travel.
As a result, struggling large agencies are often forced to compete for smaller new business contracts, increasing competition from challenger agencies. This had a dramatic impact on companies further down the food chain, and industry sentiment plummeted. But new research by M&A experts JEGI CLARITY and growth strategy consultancy CIL Management Consultants suggests the sector could be on the brink of even better results next year.
Source: CIL Management Consultant
In 2023, only 12% of 28 digital marketing executives surveyed said they felt their digital marketing department was doing well. In contrast, 67% said the situation was “neutral,” while 21% said the situation was “very bad.” However, in 2024, the emphasis changes, with only 4% of respondents feeling that the situation is “very bad” and 42% thinking that the situation is “good” or “very good”.
What is important is that expectations for the growth of individual companies are also rising. Last year, the majority of companies expected growth to be below 5%, but a significant minority felt they were headed for a contraction of up to -5%. But this year, all respondents expect some positive growth, with the majority expecting growth of 5% or more.
Although there is still uncertainty regarding upcoming elections in various major markets, including the UK and US, this positive sentiment is driven by improving economic conditions due to slower inflation and optimism regarding the adoption of AI. It has been. Among digital marketing professionals surveyed, 42% expected digital marketing to have a positive impact on the sector, while only 16% thought it would have a negative impact. did.Meanwhile, 60% are actively implementing AI into their workflows
Source: CIL Management Consultant
This has boosted M&A sentiment in the sector, with more companies feeling confident in taking risks to expand their businesses through deals. Researchers believe that over the next 12 to 18 months, several large-scale platforms will take advantage of the M&A environment to come to market, expand into new geographies, add functionality, and expand their core competencies. I expect it to be developed.
This comes as 67% of respondents expect M&A to play a key role in their future growth strategy, even though the M&A market remains competitive for quality companies to enter the market. This is supported by the fact that Additionally, a majority of respondents (89%) are considering M&A activity in the short term to support geographic and business expansion, particularly expanding into the US market as a key driver of growth. is focused on.
Luke Rowell, director at CIL, said: “After a difficult year in 2023, the outlook for Europe’s digital services sector is positive. Impact and brand integration challenges need to be overcome.” . M&A will continue to be a key means of value creation and will underpin most growth strategies as companies look to add functionality to their products and expand into new geographies, particularly the US. ”
