Keith Hunt, managing partner at corporate finance specialist Results International, talks to M&A about deal-making in the marcoms sector

Keith Hunt, managing partner at corporate finance specialist Results International, talks to M&A about deal-making in the marcoms sector

When even television advertising loses its shine, it might seem reasonable to assume that the marketing and communications (marcoms) sector is in for a stormy ride. ‘The big thing in the industry used to be television advertising, but that’s really struggling at the moment,’ says Keith Hunt, managing partner at corporate finance specialist Results International.

However, even as television’s star begins to wane, another takes its place. Says Hunt: ‘A major trend in recent months has been the growth of digital marketing, that’s everything from online marketing to web design and mobile marketing. I think we’ll see a good number of deals in that sector in the coming months.’

London-based Results International was founded in 1991 and focuses exclusively on deals in the marcoms sector. The firm has four partners in London, who are supported by five partners in international offices covering Asia Pacific, US, Latin America, Europe, India and Dubai. ‘In those jurisdictions, we started doing buy-side work, so helping businesses find targets. Then as we became more established, we started helping marketing firms seek acquirers and obtain finance.’

Of course, the uncertainty in the market has produced some problems: ‘A lot of the big advertisers are either holding back on expenditure or not giving any clear signals as to how much they’re going to spend in the future, so people have volatile earnings. This makes it difficult for acquirers to feel confident about how much they should be paying for companies.’

A good share of the pie

As Hunt points out, this partly explains why deals in this sector rely heavily on earn-out provisions: ‘Companies will happily pay if there’s a three year earn-out provision, but they are nervous about putting too much down up front.’ Similarly, he notes that the firm is ‘dealing with people businesses, so issues tend to circle around the quality of the people they retain. The earn-outs are also used to try and lock-in talent’.

Another feature of deal-making in this sector is the emphasis on shares: ‘The reason for this is to preserve cash for the acquirer, but also to ensure that the acquiring company buys into the growth of company.’

Unfortunately, mid-market players have been affected by some familiar problems: ‘The typical size of deals in the marcoms sector is up to £50 million, which means that large networks can often acquire without too much of a problem. Mid-market buyers, on the other hand, often have to take on debt to finance deals, which has been difficult in the last 18 months.’

The firm has been helped through the recession by some welcome support from its consulting arm, which lends itself to ongoing representation, rather than individual deals: ‘It’s a less volatile revenue stream. If anything, people are more likely to ask for help in a downturn.’ Result International’s investment in buoyant global markets has also paid off: ‘There’s still a lot of interest in emerging economies, especially India and Asia Pacific.’

Moreover, things are looking up: ‘The outlook is getting better. It was worst in the first quarter. Since then share prices have shot up and confidence is much higher. There’s still a lot of activity at the top end of the digital market – people are still prepared to stick their neck out for these businesses.’