Thailand, Malaysia draw M&A interest as Asian ad giants hit pause: Report

Global M&A activity is showing signs of recovery following a subdued 2023, with deal volumes up 7.2% year-over-year in Q3 2024, according to SI Partners' fifth annual Global M&A Insights report. The study, which analysed 1,150 deals from 125 of the most active buyers in the agency, consultancy, and technology service sectors, reveals a shifting landscape particularly impacting marketing and advertising groups.

Key findings:

Deal activity and market dynamics

• While mid-market activity remains above pre-Covid levels, Q3 2024 showed significant improvement that's expected to continue through Q4 and into 2025
• The typical calendar rhythm of M&A has been disrupted, with processes progressing more slowly and buyers showing increased risk aversion
• Deal completion times have extended to 6-12 months, reflecting more thorough due diligence processes
• Recent trading has been uneven across segments, with some sellers hesitant to transact until they see stronger performance

Private equity dominance

• PE fundraising reached $500 billion in H1 2024, up from $400 billion in 2023
• PE firms have committed $17 billion to AI and machine learning investments—triple the previous year
• Combined with PE-backed companies, private equity accounts for about one-third of all deal volume
• The sector is showing growing caution around B2B services, with funds closely monitoring exits of prominent assets

Technology consulting trends

• Technology consultancies account for about one-third of the market despite recent soft trading
• Accenture remains the most aggressive acquirer, accounting for more than half of tech consultancy deals
• Indian firms like Wipro and Tech Mahindra face cultural challenges in acquiring Western businesses
• The sector is moving beyond digital transformation to expand product offerings

Regional market variations

• Southeast Asia seeing increased demand, particularly in Thailand and Malaysia's tech sector, with domestic companies actively seeking expansion opportunities in the region. Malaysia's technology sector is emerging as an especially attractive market for investment, while Thailand continues to draw significant buyer interest
• Singapore and Australia markets showing cooling trends, with Singapore's slowdown prompting domestic companies to look elsewhere in Southeast Asia. Australia faces additional pressures from tightening budgets and the growing threat of in-housing, though international buyers still favor multi-geography assets that can serve as pan-Asian bases
• Middle Eastern sovereign wealth funds driving significant M&A activity, with Dubai and Riyadh witnessing a rise in start-ups and digital transformation initiatives. Saudi businesses are being incentivised to use the local stock market for liquidity, though these opportunities face complex trading conditions
• UK continues to attract high demand from US and European buyers amid increasing consolidation in Europe. Local private equity-backed players are actively pursuing roll-up strategies, creating an increasingly competitive environment for investments in the region

Implications for advertising:

The advertising landscape is experiencing a significant transformation, led by Publicis Groupe's successful integration of technology investments. Their $9.4 billion (€9 billion) investment in Sapient and Epsilon has set a new standard for the industry, demonstrating double-digit growth even in challenging markets like China. This success has created a clear divide in the market, with traditional agency groups now facing pressure to either evolve or become acquisition targets themselves.

In the APAC region, the situation is particularly complex. Traditional Asian advertising groups have pulled back from acquisitions, hampered by political tensions and ongoing post-Covid recovery challenges. Hakuhodo's focus on Southeast Asian expansion highlights the region's potential, though their long earn-out periods may deter some sellers. Meanwhile, Dentsu's strategic overhaul, marked by Japanese leadership taking control from Dentsu International, signals a significant shift in regional power dynamics.

The technology integration story remains central to valuations and market positioning. Companies effectively leveraging AI for workflow optimisation and data insights are seeing stronger performance and attracting more buyer interest. However, the report notes that AI is not yet viewed as a reliable front-end solution for most agencies, suggesting a measured approach to technology adoption is needed.

Looking ahead to 2025:

Looking ahead to 2025, technology and innovation will be key drivers of M&A activity as the market recovery gains momentum. While APAC markets show strong demand for businesses with predictable cash flows and pan-Asian operations, challenges persist in markets like Australia due to tightening budgets and in-housing threats.

Marketing services groups will either follow Publicis' successful technology integration model or may risk becoming acquisition targets, with some larger groups facing potential break-up pressure. AI capabilities will be crucial for valuations, though the report emphasises the need for strategic rather than superficial adoption.

Success in 2025 will hinge on companies demonstrating both strong financial performance and technological innovation, with APAC firms particularly focused on balancing regional dynamics with digital capabilities.