Agency and Marketing Solutions Annual Report 2025

Agency & Digital Marketing are radically changed by advancements in Generative AI, from content creation and customer service to analytics, optimization, and consumer targeting. See how these AI-powered tools are redefining industry standards in the Agency & Marketing Winter 2025 Report.

AGENCY & MARKETING SOLUTIONS ANNUAL REPORT

2025

Index

Macroeconomic Overview

Industry Overview

Market Breakdown

M&A Activity

Select FE International Transactions

Funding Activity

Looking Ahead

Behind this Report

About FE International

Macroeconomic Overview

A New Year, a New Hope

Real GDP Growth (% YoY)

Global economic outlook is more hopeful for 2025. Cabinet changes across several of the G20 and accommodative monetary policies signal greater potential for growth across markets and industries. The incoming US Presidential Administration heavily influences the global macroeconomic outlook for 2025. The election of Donald Trump in the US is widely expected to improve the economic and regulatory landscape for business owners. In the international arena, President-elect Trump’s trade policies will likely focus on attempting to solidify U.S. dominance in areas such as digital technology and artificial intelligence, broadly benefitting the tech industry as a role. US President-Elect Trump's generally pro-business stance is encouraging to global markets. The new administration's proposed tax policies could lead to substantial changes in the US economy and its partners. Tax cuts, particularly for corporations and high-income earners, might stimulate investment and economic activity. While global financial markets are especially poised for a potentially transformative period, across- the-board tariffs from the US would be unusual — the impact on the global economy could be considerable. However, the potential imposition of tariffs is more likely the starting point of negotiations. Worldwide GDP is forecast to expand 3.0% next year, slightly below prior estimates. The UK and EU are expected to continue to struggle with growth but could be impacted positively by events in the U.S. In China, growth is expected below the official 5% target for the year. For the U.S., there is no consensus, and forecasts are being reconsidered at this writing. Goldman Sachs and UBS forecast 2025 U.S. GDP growth at 2.7-2.9%. The U.S. economy could initially grow slightly faster under Trump's plans to cut corporate taxes, but that impact could quickly fade depending on the effects of a tariff conflict. The Conference Board’s Consumer Confidence Index rose to 111.7 in November 2024, an increase of 2.1 points from October and the highest level since July 2023. This likely reflects increased consumer optimism following the U.S. presidential election and more positive assessments of the current labor market.

4.8%

4.1%

3.3%

3.0%

2.9%

2.7%

1.5%

1.2%

0.9%

0.8%

24E 25E

24E 25E Euro Zone

24E 25E

China

World

Consumer Confidence Index (%)

Index, 1985 = 100

140

Recent uptick in Consumer Confidence

130

120

111.7

110

100

2020

2021

2022

2023

2024

2025

Source: S&P Global Economic Research and The Conference Board.

The Lower Middle Market: A Hidden Gem for M&A Central banks worldwide have continued a gradual reduction in policy rates, which is expected to greatly benefit M&A activity through 2025. The lower-interest-rate environment benefits sellers by making deals more affordable and attractive. Lower borrowing costs translate to reduced debt, quicker deal timelines, and less complex financing structures. Sellers may be able to negotiate for larger upfront payments and fewer deferred payments or earn-outs, as lower borrowing costs reduce the need for such complex arrangements.

The recent interest rate cuts are encouraging for buyers and sellers alike, especially as capital deployment becomes a priority at year end. The [US] Fed didn’t commit to a timeline for the next cut, possibly a signal of caution with policy shifts from the new US administration. Inflation is still “somewhat elevated," so they are walking a tightrope. Powell’s challenge? Balancing a cooling labor market with inflation control. For business owners, this could mean opportunity in the months ahead.

Thomas Smale CEO of FE International

The underlying technology and platform primarily drive lower middle market deals. Lower middle market deals valued under $100 million often require less financing, making them less sensitive to interest rate fluctuations, but lower rates can lead to even more favorable terms and increased deal activity. Importantly, overall economic optimism and a pro-business environment can lead to increased deal activity, especially in the lower middle market. For instance, the US President- elect has expressed plans to deregulate the financial industry and emphasizes technology solutions for financial transactions, which portends well for increased deal activity.

Interest Rate (%)

Rate cuts by Central banks

Quote from Randal The true driver of success in lower middle market technology deals lies in the underlying technology. In sectors like FinTech, where innovation is paramount, the ability to acquire and deploy transformative technologies will ultimately determine deal outcomes. Additionally, a pro-business environment can, on the margin, prompt more transactions to be considered and pursued.

4.38% 3.40% 4.75%

1.00%

Randal Stephenson Head of Investment Banking of FE International & CEO of FE Capital Markets LLC 1

Jan-22

Sep-22

Jun-23

Mar-24

Dec-24

US (Fed)

Euro Area (ECB)

United Kingdom (BoE)

Switzerland (SNB policy rate)

Source: Interest rates as per central bank data of respective regions. Note: ECB = European Central Bank, BoE = Bank of England, SNB = Swiss National Bank. (1) Securities transactions offered and managed through FE Capital Markets LLC, Member FINRA/SIPC (FINRA CRD# 314943).

Venture Capital & Private Equity Investment Outlook

VC Dry Powder ($B) by Vintage

PE Dry Powder ($B) by Vintage

$800 B

$1,800 B

$1,600 B

$700 B

$1,400 B

2024 2023 2022 2021 2020 2019 2018 2017 2016

$600 B

2024 2023 2022 2021 2020 2019 2018 2017 2016

$1,200 B

$500 B

$1,000 B

$400 B

$800 B

$300 B

$600 B

$200 B

$400 B

$100 B

$200 B

$0 B

2014 2015 2016 2017 2018 2019 2020 2021

2022 2023 2024

2014 2015 2016 2017 2018 2019 2020 2021

2022 2023 2024

• Venture capital fundraising in 2024 exceeded 2023 levels. Private equity fundraising, while anticipated to be lower due to higher interest rates, still surpassed $500 billion. • VC and PE firms hold approximately $650 billion and $1.4 trillion of dry powder, respectively. Favorable market conditions should create a favorable environment for robust M&A activity across sectors.

• M&A activity could surpass 10-year averages as US President-elect Donald Trump's pro-growth policies, lower corporate taxes, and expected deregulation are anticipated to create a deal-making surge in 2025, according to Goldman Sachs CEO David Solomon.

Source: Pitchbook Q3 2024 Global Private Market Fundraising Report and NY Post, 10 December 2024.

Industry Overview

The State of Agency & Marketing Solutions Artificial Intelligence (AI) continues to reshape the agency and marketing solutions market, driving radical changes in how companies approach consumers. From content creation and customer service to analytics, optimization, and consumer targeting, AI-powered tools are redefining industry standards. These advancements fuel innovation, enabling firms to deliver personalized, data-driven, and scalable solutions at an unprecedented pace. However, this wave of innovation also exacerbates competition in an already fragmented industry. The proliferation of specialized agencies, coupled with the transformative potential of AI, underscores the need for strategic consolidation. Larger firms and private equity players are well-positioned to lead this charge, acquiring niche players to build integrated platforms that address client demands for seamless, end-to-end marketing solutions. As AI continues to evolve, the firms that adapt and consolidate effectively will set the benchmark for the future of the marketing industry. The recent announcement of a potential Omnicom-IPG merger, set to create one of the largest entities in the advertising agency sector, underscores the accelerating trend of industry consolidation. Small agencies and marketing automation companies, with their emphasis on personalization and addressing niche customer challenges, are leading this shift. As technology giants recognize the benefits and superior ROI offered by the specialized tools and innovative solutions of smaller enterprises, there has been a significant increase in smaller transactions. This trend is expected to continue, fueling ongoing growth in the lower middle market.

Digital Marketing Expected to Triple

Global Digital Marketing Revenues

(In Billions of USD)

CAGR 13.1%

1,100

Fueled by growing social media usage and the rising penetration of internet services, the digital marketing industry reached $363.1 billion in 2024 . It is expected to grow at 13.1% Compound Annual Growth Rate (CAGR) from 2025 to 2034 to reach a value of $1.1 trillion by 2034 . North America remains a prominent market region and is projected to sustain its leadership in the forecast period — the number of digital agencies in the US has grown 54% from 2018 to 2023 while also increasing in average size. The region is known for its technological advancements in both commercial products and creative solutions, which foster significant opportunities within the industry. Key trends for the coming years are emerging clearly. Most importantly, marketers will seek better visibility into spend performance with a universal increased emphasis on ROI measurement and marketing attribution. Advertising firms will likely lead experimentation with GenAI, bringing new efficiencies while solidifying agencies as a cost-effective, flexible solution.

363

2024

2034F

Source: Expert Market Research

EU Regulations

The EU embraces its reputation as the world's greatest tech regulator, establishing new privacy standards for regulatory bodies around the globe. GDPR (General Data Protection Regulation): This privacy law requires organizations to obtain explicit consent from individuals before collecting, storing, or using their data. It also grants individuals the 'right to be forgotten,' allowing them to request the deletion of personal data. The regulation is designed to give individuals more control over their personal information. It went into effect in May 2018 and applies to any organization that processes the personal data of EU citizens, regardless of where the organization is based. Digital Services Act (DSA): This regulation aims to prevent both illegal or harmful activities online and the spread of disinformation. The law promotes user safety, protects fundamental rights, and creates a fair online environment by compelling social platforms to invest more in stomping out misinformation and hate speech on their platforms while banning targeting ads that are based on an individual’s ethnicity, religion, or sexual orientation. The DSA came into effect in select jurisdictions in 2023 and was universally enacted February 2024.

Source: Forbes, Basis Technologies; European Commission.

US Regulations

The US lags global regulation standards, with most laws being decentralized and at the state level. CCPA (California Consumer Privacy Act): A similar privacy law to the EU GDPR — it requires organizations to obtain explicit consent from individuals before collecting data and allows individuals to request deletion of data. The regulation applies to any organization that collects the personal data of California residents and has annual revenues of $25 million or more. The CCPA went into effect in January 2020. State-Level Data Privacy Acts: Five new laws took effect in 2023, with regulations coming to Virginia, Colorado, Connecticut, Utah, and California. Additionally, new rules were enacted in Texas, Oregon, and Montana in 2024 with several other states to follow suit in 2025 and beyond. Notably, in May of this year, Vermont passed a provision that would allow individuals to sue companies that violate their privacy rights — one of the strongest data privacy measures in the country. American Privacy Rights Act of 2024 (APRA): A bipartisan group of federal lawmakers released a draft piece of legislation in April 2024 that would establish a comprehensive federal consumer privacy framework — the first of its kind. Congress has discussed such legislation for many years, which has bicameral support, including several key members of the House and Senate. Telephone Consumer Protection Act (TCPA): The Federal Communications Commission (FCC) published amendments to the TCPA aimed at enhancing consumer protection against robocalls and robotexts, which will take effect on April 11, 2025.

Source: Forbes, Basis Technologies, Consumer Financial Services Law Monitor.

Google’s Decision to Retain Cookies Google initially announced its plan to phase out third-party cookies in 2021, with implementation scheduled for 2023, later pushed to 2024. Amid ongoing discussions about the potential impact on advertisers and consumers, Google decided to reverse its long-planned move to eliminate third-party cookies in July 2024. Cookies are text files stored on a user's device by websites. Third-parties often use cookies to track users' site visits and activities both on their site and across the web, for the purpose of delivering targeted ads and other personalized content. According to W3Techs, a web technology research firm, approximately 40.9% of websites globally utilize cookies to collect user data. Instead of eliminating cookies, Google now plans to retain them and introduce a new experience in Chrome that allows users to make informed choices regarding their cookie preferences across their web browsing. As a result, the way users interact with the web is unlikely to change significantly in the near future. Users will continue to encounter checkboxes asking whether they want to accept all cookies or only essential ones. Advertisers will continue to have access to valuable data from tracking users' activities across the web, ensuring sustained growth in the AdTech industry and driving increased investment activity.

Source: CNBC

Market Breakdown

Marketing Solutions Market Breakdown

Sectors

Marketing Tech

Advertising Tech

Marketing Tech (MarTech) refers to tools, platforms, and software applications that enable businesses to automate, streamline, and enhance their marketing efforts. It is the second-highest priority software investment, behind only IT security.

Advertising Technology (AdTech) encompasses the technology and software utilized to manage, deliver, and evaluate the effectiveness of online advertisements.

Overview

The global MarTech market size reached $493.7 billion in 2024 . It is expected to reach $2.43 trillion by 2033 , exhibiting a CAGR of 18.41% during 2025- 2033 .

The global AdTech market size was estimated at $845.33 billion in 2023 and is expected to expand at a CAGR of 22.4% from 2024 to 2030.

Expected Growth

• Increased investment in data, automation, and artificial intelligence. • Shift to Connected TV (CTV) as more consumers shift to streaming services. • Shift towards greater transparency and data protection.

• Rise of hyper-personalized marketing content. • Increased incorporation of AI into daily workflows and streamlined, data- driven marketing strategies. • Shift towards privacy-centric marketing policies.

Key Trends

Source: IMARC Group, Grand View Research.

M&A Activity

Agency & Marketing M&A Activity

Agencies & Marketing M&A by Year (In Millions of USD)

140

115

Low marketing spending and a decline in M&A activity were notable in 2023 as global M&A volume fell to the lowest level since 2004. However, despite shifting market demands and consumer preferences, the industry shows resilience in 2024, and these lows may indicate pent-up demand for deals in 2025.

Key trends:

$2,235

$4,042

$3,709

$1,980

$1,318

• Upturn in Total Deal Value: While the total deal value declined in 2023 and early 2024, a recent uptick was observed in Q3 and Q4 2024 compared to previous quarters. We anticipate that this positive trajectory will continue into 2025. As the marketing industry becomes increasingly complex, mergers and acquisitions are emerging as strategic imperatives for marketing firms seeking to navigate this evolving landscape. • Increased Martech Activity: Despite a decline in new product launches and feature updates in 2023, the use of AI has led to an upswing in 2024, resulting in significant MarTech M&A transactions. • Non-Traditional Buyers: Companies like publishers, sports leagues, and digital media businesses are entering the M&A market seeking complementary agency services.

2020

2021

2022

2023

2024

M&A Volume by Quarter (In Millions of USD)

Total Deal Size in ($B) # of Deals

36 36

30 30

24 23

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2020 2021 2022 2023 2024 Source: Pitchbook as of 31 December 2024. Data consists of transactions where deal value was disclosed. Note: Companies valued between $0 - $150 million were considered lower middle market.

Distribution of Lower Middle Market Agency & Marketing M&A Deals

11%

2024

2022

2023

16%

15%

14%

63%

64%

$0 - $25M $25 - $50M $50 - $100M $100M+

• Consistent with previous years, transactions with an Enterprise Value ranging from $0 to $25M represent the majority of deal volume in 2024, reflecting a trend of increased consolidation in the early stages of companies' lifecycles. • Experts anticipate a resurgence in M&A activity in the coming year, primarily driven by improvements in broader economic conditions, which are expected to accelerate movement in the lower middle market.

Source: Pitchbook as of 31 December 2024. Data consists of transactions where deal value was disclosed.

Select Agency & Marketing M&A Deals Lower Middle Market

Deal Size ($M)

Target

Buyer

Date

Target

Buyer

Date

22-Oct-24

104

29-Nov-24

9-Jul-24

100

28-Mar-24

12-Jun-24

29-Jul-24

29-Oct-24

19-Sep-24

30-Jul-24

3-Mar-24

8-Apr-24

25-Jun-24

2-Oct-24

17-Sep-24

26-Apr-24

29-Apr-24

Source: Pitchbook as of 31 December 2024.

Active Agency & Marketing Buyers Lower Middle Market

Financial Buyers

Strategic Buyers

Source: Pitchbook as of 31 December 2024.

Select FE International Transactions

Sold to

Private Buyer

Backed by

Digital Services SEO / Link Building

Podcasting Agency

IP Geo-Location Platform

Digital Marketing Agency

Referral Marketing Software

• FE brings extensive industry experience and strong relationships with buyers and investors across various marketing sectors. • The businesses range from early-stage startups to mid-sized growth companies, and FE professionals understand the industry's challenges, always staying ahead of market trends and leveraging deep industry connections to realize each founder’s vision. • By running competitive processes and applying specialized domain expertise, FE ensures a seamless transaction experience, delivering optimal outcomes and exceptional client satisfaction.

Sale of a Salesforce Consultancy FE International conducted an extensive process, resulting in successful bids from private equity-backed strategic acquirers

Company Overview:

Sold to

Cloud Orca is an award-winning CRM consultancy which specializes in the implementation and management of Salesforce products and other support packages. The Company implements projects and designs custom solutions for their clients across the Salesforce ecosystem, including digital transformation, cloud integration, migration, automation, and more. FE International holds an unparalleled position in the Salesforce ecosystem with dozens of transaction completed in the space. The firm was able was able to increase the final offer by conveying lucrative cross selling opportunities and operational synergies.

B2B Salesforce Consultancy / Agency

Key Value Drivers:

Buyer Interest:

Process Results:

• 73% revenue CAGR over 2019 – 2022 • 37% adjusted EBITDA margin over the LTM • Wide Salesforce expertise across financial services, high-tech, and healthcare industries • Global client base of enterprise customers • Average contract value of $33K

• 675 buyers contacted with the majority of outreach focused on strategic acquirers

• Received 3 competitive offers for the business from PE backed strategics. • Offers received exceeded sellers’ expectations, achieving a highly competitive multiple and favorable deal terms.

Tailored Search Creates Strategic Sale FE International finds SellerDirectories a strategic home

Company Overview:

Sold to

SellerDirectories researches, curates, and validates e-commerce data from a wide range of sources. Its databases include Amazon 3P sellers and 1P vendors, Walmart sellers, DTC brands, WooCommerce, and Shopify store owners. The company offers databases spanning 8 countries and provides a custom list-building service, enabling customers to select from various data points, including business metrics, pricing, and more. FE International helped both the seller spot operational synergies with potential strategic buyers, leading to a quick and efficient transaction that closed ahead of schedule.

B2B Database Provider

Key Value Drivers:

Buyer Interest:

Process Results:

• 67% adjusted EBITDA margin in 2023 • Global marquee client list • High average order value

• Opportunity presented to 250+ buyers • Actively engaged with 84 parties including strategic and financial acquirers

• 5 competitive offers were received, resulting in the sale to a strategic acquirer

Bootstrapped SaaS Finds Successful Exit DropFunnels, an all-in-one marketing solution, completes exit in 60 days

Company Overview:

Sold to

DropFunnels is an all-in-one marketing solution that gets businesses online with a website in minutes. The platform includes pre- built drag-and-drop modules that make creating funnels quick and easy with a variety of options such as creating pricing charts, custom checkouts, digital course hosting, and more. The founder came to FE International because he wanted a fast exit – he was ready to found his next business, and needed a buyer who could continue to scale DropFunnels to success. To his satisfaction, the transaction closed in under 60 days.

SaaS Marketing Solution

Key Value Drivers:

Buyer Interest:

Process Results:

• Adjusted EBITDA margin of c.44% • 1,000+ users • Impressive 4.5 out of 5.0 stars on Capterra

• Opportunity presented to 800+ buyers with the majority of outreach focused on strategic acquirers

• Quick and efficient process with signed offer to close in under 60 days

Funding Activity

Global Agency & Marketing Funding

Agencies & Marketing Funding by Year (In Millions of USD)

585

Total Deal Size in ($B) # of Deals

474

Following the global trend across all industries, funding for agencies and marketing solutions surged in 2021. Although the pace slowed significantly in 2023, recent indicators suggest enduring potential in the sector.

337

280

256

Key trends:

• Funding Volume: Total deal volume has remained steady after a decline in 2022. Although the pace has slowed, broader economic factors, such as interest rate cuts and a significant industry shift toward digitization and AI, are expected to have a positive impact in the coming years. • Shifting Investment Strategies: In 2024, while the share of later-stage VC remained the highest, consistent with previous years, there was a slight increase in the share of early-stage VC and seed rounds compared to 2023. • Need for Digital Transformation: The rapidly evolving digital landscape necessitates a digital transformation for agencies to remain competitive and meet the changing demands of consumers. As a result, there is an increased need for funding, which is expected to drive funding volumes next year.

$6,245

$14,362

$11,969

$5,465

$4,271

2020

2021

2022

2023

2024

159 Funding Volume by Quarter (In Millions of USD)

Total Deal Size in ($B) # of Deals

148 152 152

133

118

109

75 74

67 72 73 68 66 66 64 60

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2020 2021 2022 2023 2024

Source: Pitchbook as of 31 December 2024. Data consists of transactions where deal value was disclosed. Note: Companies valued between $5 - $150 million were considered lower middle market.

Global Agency & Marketing Funding Rounds by Volume

10%

16%

12%

37%

12%

46%

2022

2023

2024

37%

36%

35%

$5 - $10M

$10 - $25M

$25 - $50M

$50M+

• 83% of agency & marketing funding deals have been in a range of $5-$25 million in 2024, the highest proportion in the last two years. This shows growing interest in lasting operations made to scale. • The rising proportion of small-size transactions is a positive indicator of industry growth, reflecting enhanced access to capital and fostering innovation.

Source: Pitchbook as of 31 December 2024. Data consists of transactions where deal value was disclosed.

Agency & Marketing Funding Deals Lower Middle Market

Deal Size ($M)

Company

Date

Funding Type

Company

Date

Funding Type

19-Nov-24

125.0

Later Stage VC

30-Oct-24

40.0

Early-Stage VC

19-Sep-24

100.0

PE Growth

26-Apr-24

40.0

PIPE

15-May-24

88.2

Later Stage VC

14-Mar-24

34.0

Later Stage VC

24-Sep-24

76.0

Later Stage VC

4-Mar-24

34.0

Later Stage VC

12-Aug-24

75.1

Later Stage VC

13-Sep-24

33.8

Later Stage VC

18-Oct-24

74.0

Early-Stage VC

17-Jul-24

30.7

Later Stage VC

19-Mar-24

60.0

Seed Round

16-Oct-24

30.0

Early-Stage VC

27-May-24

56.7

IPO

3-Jun-24

27.1

Later Stage VC

1-Jan-24

44.0

Later Stage VC

26-Jul-24

26.5

Later Stage VC

24-Aug-24

42.4

Later Stage VC

20-Nov-24

25.0

Later Stage VC

15-Apr-24

40.5

Later Stage VC

22-Oct-24

25.0

Later Stage VC

Source: Pitchbook as of 31 December 2024. Note: Data includes funding rounds exceeding $5 million for companies with a valuation under $150 million.

Active Agency & Marketing Investors Lower Middle Market

Investor

# of Investments in 2024 Select Investments

Source: Pitchbook as of 31 December 2024.

Looking Ahead

Looking Ahead The digital marketing landscape is continuously evolving, driven by advancements in technology, changing regulations, and shifting consumer behavior. Marketing leaders are investing in customer insights while adapting to evolving media consumption patterns and increasingly stringent data regulations. Key Takeaways: Integration of AI and Machine Learning: AI and machine learning are transforming digital marketing, particularly in customer segmentation, customer support and content creation. To stay ahead, marketing teams should familiarize themselves with AI-driven tools to enhance customer satisfaction. Unwavering Popularity of Video Content: Video content continues to be a powerful tool in digital marketing as consumer preferences increasingly favor short, engaging content. Hyper-personalization: The growing emphasis on hyper-personalization has driven demand for dynamic content platforms, enabling real-time content adjustments based on user data to deliver relevant messages to each visitor or user. By staying ahead of these trends and embracing innovative strategies, industry leaders can navigate challenges and capitalize on the opportunities that lie ahead. With decades of experience in the field, FE International provides the expertise and guidance founders need to achieve their business goals and navigate the complexities of the industry.

Behind this Report