In this, the first of our blogs for 2013, we’re going to take a look back at the past 12 months to see if we can get a feel for what the trends might be for the next year.
2012 saw around 150 deals in our industry, from the big (WPP snapping up AKQA, possibly the world’s biggest remaining independent agency, in June) to the small (Mediafed buying Taptu) to the left-field (newspaper and magazine wholesaler Menzies Distribution making a move for the Orbital Marketing Group).
Acquirers, as one might expect included large groups, and WPP, Publicis, Omnicom and Aegis – the latter itself the subject of a long, drawn-out takeover by Japanese conglomerate Dentsu - were especially active throughout the year; but there were also a number of acquisitions by smaller, but just as ambitious, businesses – Mission Marketing Group and Blue Glass among them.
And what of the businesses they were buying? They were a very diverse bunch: advertising, social, search, PR, channel marketing, data and analytics, design, market research, mobile, field marketing, tech, healthcare, experiential – all in all a testament to how vast and diffuse the marketing services industry has become over the past decade or so and also how it continues to evolve.
The purchase of the highly creative advertising agency Adam & Eve by Omnicom’s DDB (just five years after being set up by a group of former RKCR/Y&R hotshots) and Publicis’ taking full control of BBH, as well as the aforementioned Aegis and AKQA deals, got all the headlines, but the real interest lies in the margins.
Truth be told, there are very few businesses of AKQA’s size left to acquire; and large (or for that matter, less large) generalist marketing services companies aren’t of that much interest to a holding group which already has these capabilities in-house. However, AKQA, Adam & Eve and BBH all had very good creative reputations, and that is probably why they were bought. It is important that new creative thinking is brought in from time to time – smaller agencies tend to do it through the hire and churn of new staff – but the bigger ones can struggle to keep that creative ‘edge’ simply because their staff base is often much bigger – a few implants are unlikely to infuse the group.
The easiest way for larger network agencies to ‘refresh’ is often to do it via acquisition – bringing in a team in one fell swoop – which can then quickly merge its thinking and methodologies into the acquirer. Obviously, integration is key if this is to work and it is important that the incumbents approach their new bedfellows with an open mind, but one would like to think that integration strategy was agreed way before the deals were completed, particularly given the sums at stake.
However, away from the headlines was where things got really interesting. The major groups know that the growth over the next few years will be in more “niche” areas such as mobile, data, social media, pharma and so on. These areas require particular and novel skillsets that many established agencies and groups lack – and they are keen to acquire the knowledge, IP, experience and talent of the many small start-ups that operate in these areas.
Two areas, data analysis and mobile, were of particular interest to acquirers in 2012, and I think we’ll see a lot more of this kind of acquisition activity in 2013 as marketing and tech continue to merge. In both the UK and US, there are large numbers of small and medium sized businesses, many of them stuffed with talent and expertise (and often very interesting proprietary technologies and IP), which would benefit immensely from the investment and resources of larger enterprises. Naming no names (yet!) there are a number of exciting businesses out there which I’d be quite surprised to see still independent in 12 months’ time.
Another area where we saw a good deal of activity in 2012 was in China, with large “Western” global businesses buying up smaller local ones. All the big players of course have outposts in China, and many of them are doing very well, but China, for all its thirst for Western brands, is a market where local knowledge and local connections count for a great deal, and culture is very important too.
It’s much easier for a Western group to buy up a successful Chinese agency, which understands the nuances of the local market and its culture, to build a presence in this vast country than it would be to open a new office of their own there. It is also relatively cheap – the size of deals in Asia is generally a lot lower than those in the Western economies. Aegis has been very active in accessing China in this way. Last year it bought three agencies in the region – OMP China, Catch Stone and Beijing eLink – and I suspect we will see more of this activity this year, both from Aegis and the other groups.
Talk of Aegis brings me to what I think might well turn out to be the most significant deal of 2012, at least in the long term. As widely reported, the Japanese agency Dentsu made an audacious bid for Aegis last July. The deal has still to be approved by the authorities but should go through within the next two or three months.
Dentsu is a giant in Japan, but has always struggled to make an impact in the West and elsewhere. It does have a reasonably decent footprint in the US and acquired one of the UK’s largest search agencies, Steak, just 18 months ago (we at Green Square were the advisers to Steak on this transaction), but it is a well-known fact that Dentsu harbours ambitions to move more significantly into the enormous market across the Sea of Japan, as well as Europe and the Americas. Aegis’ flurry of acquisition activity in China therefore makes very sound business sense and is obviously part of a long-term strategy for growth.
Given the current territorial grumpiness between China and Japan, the authorities in the People’s Republic are probably prevaricating regarding giving their approval but, should the deal go through (and it most probably will) I think we will be seeing a lot more Dentsu/Aegis activity on our Green Square Deal Monitor through 2013.
Tony Walford is a partner at Green Square, Corprate Finance Advisors to the media and marketing sector.