Private equity now makes up 30% of M&A market as holding companies struggle

But it’s not all bad news. The report found that, despite a significant dip earlier in the year amid widespread geopolitical strife, activity rebounded in Q3, with investor confidence high for 2023. In a survey of significant buyers in the space, 70% said they expect M&A volumes to rise in 2026.

Confidence was hit in the US, the seat of tariff turmoil, where 2025 saw a 5% dip in deals. An even bigger dip hit Europe at 18% (though the UK “held steady”). One market stands out with massive growth: the Middle East, the world’s fastest-growing M&A region, with transactions rocketing by 133%, spurred by encouragement from local government, including the Saudi Vision 2030 and UAE Economic Agenda 2031.

AI readiness remains a key factor in acquirers’ appetites, with half of buyers naming AI and machine learning as their top investment priority for 2026. Data and analytics, as well as cybersecurity, also emerged as top investment priorities.

Private equity direct deals down while investors expand their approach

Direct private equity (PE) investments into the sector fell 43% this year, but that’s far from the whole story, with PE spreading its influence throughout the investment landscape, Tristan Rice and Joe Hine, both partners at SI, tell The Drum today.

For a start, while that direct investment figure is down, PE-backed acquisitions have risen by 25% this year. In the mid-market, PE investors are involved in 80% of all deals. As a result, PE now makes up 30% of the total market – and with record levels of undeployed capital (at an estimated $2.5tn+ globally), Rice and Hine expect those numbers to increase next year.

Meanwhile, Rice says, PE investors are still holding on to their agency acquisitions for longer than intended. “It’s been hard for these funds to make the decision to pull the trigger on an exit because performance isn’t where they want it to be: they’re not confident they’re going to get the multiple they want, or they perceive that there are just not enough buyers for that business to generate competitive attention and get the result they want. And the trend is continuing that most of these PE-backed businesses are selling to other PE funds. That’s a bit worrying.”

This may represent a shift in how PE approaches the market, say Rice and Hine. For all its complexities, most PE deals are simple at their core: buy a business, grow it over around four years, sell it for more than you bought it for. But if PE fund sells to PE fund, the list of potential buyers contracts with each uptick in price and successive round.

Take Dept, the Amsterdam-headquartered digital agency that’s been under the wing of PE firm Carlyle since the start of January 2025. “It grew really well, made lots of smart acquisitions, really a poster child for the industry. But then it kind of got to a scale where growth became harder, refinancing had fewer options. There are probably only four or five PE funds in this sector capable of doing a deal of that size. So it is stuck waiting for the IPO market to reopen… And the public markets have never been particularly good places for these sorts of businesses to exist.”

In the rich constellation of new agency groups and networks in the midmarket, this puts these long-held PE groups and agencies in a brand new category of their own.

Meanwhile, as deals from the early heyday of PE’s interest in the marketing world start to mature, the market is starting to moderate as it sees that high multiples aren’t always sustainable as marketing businesses grow, says Rice. “We’ll see more moderation as PE starts to realize that this isn’t just a scale play; with scale comes fewer options and less growth.”

PE Investors are adapting to this reality already, says Hine. “Some of the PE houses – the very large ones – are going to start looking at assets in a different way, almost as if they’re the ultimate home for the business, more along the lines of a debt fund, accepting that their return is going to be 10% or 15% a year for a number of years, rather than two- or three-times in five years, and raising money in a much lower-risk way with lower returns that allows them to expand out their funding sources. You almost get the private market mirroring the public market.”

Hine points to the acquisition of former WPP agency FGS by PE firm KKR at the tail end of last year as a deal that hints at a “hybrid” approach for a simple reason: “it’s a business that turns up so much cash.”

So, for the years ahead, expect two routes for PE: those looking for high multiples and quick returns will look to buy smaller businesses and sell on to bigger fish in the PE pond. For those bigger fish, says Rice, “we’ll start to see some variation in how these deals are structured as people realize that it’s not a linear market.”

Holding companies increase M&A (but expect plenty of pain ahead)

In 2025, marketing and communications groups have increased M&A activity by 22% year-on-year, the report finds, with holding companies Publicis and Havas among those upping investment.

It has certainly been a big year for big-ticket hold-co M&A: WPP and Publicis’s duelling big-data acquisitions of Infosum and Lotame respectively; the slow progress of Omnicom’s megamerger with IPG, which should finally close by the end of this month.

Most recently, the industry was lit up by a rumor, hastily shot down by Havas chairman and chief exec Yannick Bolloré, that it was in talks to buy, with the assistance of a pair of PE groups, beleaguered former top-dog WPP. (For the record, Rice says of that rumor: “I don’t think it was ever real.”)

As a whole, Rice says, holdcos are in a “frantic scramble to try and consolidate because clients increasingly want what makes more sense in today’s marketing world” – although the trend-bucking salutary performance of Publicis may be an indication of a path forward for the giants which has “made real over the years” the holding companies’ dream of consolidation, central servicing and embrace of AI readiness.

Publicis’s competitors chasing that vision could impact the M&A market in all sorts of ways: streamlining could put major marketing businesses on the market (indeed, most of the business’s major holdcos are already quietly pursuing divestment strategies, say Rice and Hine); it may put an even greater premium on businesses with certain capabilities; continued struggles may make PE groups yet more dominant in the marketing world.

If Publicis has become the holdco world’s glimmer of hope, WPP has become the opposite this year, with tumbling share prices, management changes and successive profit warnings. Rice predicts that it won’t be long until WPP, in its woes, is in more public company with post-merger Omnicom, which, he says, “is probably going to overshadow the WPP nightmare, because there is so much that’s falling apart in that machine that no one’s even aware of at the moment. That whole business has been on hold while they’ve spent six months trying to sort out a merger. It’s like part of the business is on fire and they didn’t even know who to talk to”.

Rice says yet more investment in data and AI must be part of the solution for the holdcos, but it won’t be a panacea. “The holding companies have one major asset, which is big global client relationships. Unfortunately, their machines to service those are out of date and there is still a lot more pain to go through to right-size and right-form those machines to service clients with what a modern agency would be designed to provide.

“That’s going to erode a lot of value. There’s still PR, production, experiential media – money gets spent on that stuff, there’s just no margin in it. To grow the margin, they need to be doing more of what clients actually want, which is data and technology-driven services that provide a single view of the customer journey, etc. They need to invest much more in technology, data and AI. They need to restructure their agencies to provide that in a singular fashion, in a way that they’re just not set up to do at all”.

Acquirers’ appetites: AI (with caveats)

With 70% of acquirers looking for data and analytics businesses and appetites for finding AI in agencies’ business models, AI is unsurprisingly a major theme for the year ahead in M&A. But Rice cautions that investors are not looking to jump on a wave of AI hype, but to find good businesses with clear AI-readiness indicators.

“What they are primarily interested in is not the AI-first propositions that are primarily based on AI with a thin layer of IP over the top. There’s skepticism about how those businesses will survive what is still a rapidly evolving space. There are exceptions where they’ve managed to create something that’s incredibly bespoke, with a lot of IP wrapped around it, but in most cases, buyers are still a bit skeptical. What they’re more focused on is the combination of talent and technology.”

This ‘talent and technology’ focus isn’t new, but it applies across the board to what buyers are looking for, says Rice. So while Forrester predicted last month that PE will be on the acquisition path for major creative shops next year, Rice caveats that the ‘creative’ agencies that are most attractive are those with expertise in growth-channels like social, technology-enhanced business models and a readiness for the AI future.

While those factors are becoming must-haves for any shop looking for acquisition, though, there’s evidence that buyers are broadening what they’re looking for in terms of agency expertise. “The diversification that PE money has brought is to look beyond a singular view by the holding companies about what the CMO wants and, in turn, what the CEO and CTO want,” says Hine. The question thus becomes: “What is a fundamentally good business? I don’t mind what they’re serving. In marketing services, people are looking for complex markets. That might manifest in B2B, cybersecurity or some of the more complex IT disciplines. They’re saying, ‘How do I serve that market? Can I create a mini group that might need different tech or marketing skills, that look at things in a very different way?’”