Major mergers and acquisitions in the global marketing communications sector amounting to billions of dollars continue unabated. What’s it all about and what is the impact of these deals?
In 2014, mergers and acquisitions in the global marketing communications sector numbered 972 and were worth around $23.6 billion, according to Results International. Advertising and marketing technology deals amounted to 447 deals with a market value of around $35.5 billion. In 2015, between April and June, Results International reports that there were 246 transactions compared with 218 in the first quarter and 199 in the same period in 2014. Dentsu Aegis finalised 10 deals in Q2, including acquiring eCommera and content specialists John Brown Media. WPP came behind them buying Medialets in the US and Germany’s full-service RSK Group, among others.
Media, marketing and technology financial advisory company Ciesco Group, analysed 542 deals in the “technology-enabled media and marketing sector” that took place in the first half of 2015 and found that Dentsu and WPP each made 13 deals in that space in the first six months of the year. WPP slowed down, said Ciesco, compared to 2014 when it did 39 transactions in the first half.
These deals clearly have an impact on the global agency business. Major accounts are up for review. Huge chunks of advertising business are changing hands. But is it all for the best?
Dentsu Aegis SSA‘s CEO, Dawn Rowlands couldn’t comment on the impact of the holding company’s deals on the South African arm of the multinational due to non-disclosure agreements. “What I can tell you is that we grew by over 20% in South Africa last year without acquisitions i.e. organic growth.
“Globally Dentsu Aegis Network is growing organically, ahead of our peer group by many percentage points. Our simple operating model is designed to help our clients navigate their path in a digital world. Compared to our competitor’s structures, our operating model is focused on delivering capability when and where it counts. Our acquisitions are driven by our values and have to deliver on our ambition to be different and better,” she told The Media.
Results International’s Julia Crawley-Boevey, quoted in The Drum, said that while the second quarter of 2015 was relatively quiet, the “Significant increase in volume compared with both Q1 2015 and Q2 2014 suggests that buyer interest in good marcoms (marketing communications) businesses continues to snowball”.
Why all the deals?
Gord Hotchkiss, author, former digital agency owner and digital consultant, says this reflects some desperation on the part of big agencies. “Small agencies and shops, because they are more specialised and closer to either the respective technology or the client, tend to be more nimble and evolve more quickly. These advantages are negated upon acquisition – the merger generally kills exactly the qualities they’re trying to acquire.”
Hotchkiss also told The Media he believes that “The only positive impact is that it allows the big agency to gain some temporary street cred by the addition of the new blood and capabilities. But key personnel tend to move on soon after their buy-out. Cultures change, innovation is snuffed out. I would call it the early stages of a death spiral,” he said.
While most of the mergers and acquisitions took place in the US, and the Asia Pacific region doubled its numbers to 16%, South Africa hasn’t been left out of the feeding frenzy. With its position as the gateway to Africa, the new land of opportunity for the global advertising industry, South African agencies – particularly digital companies – were gobbled up by competitive multinationals. In June this year, Memeburn reported that Publicis is to buy The Creative Counsel for an estimated R1 billion in what would be the biggest agency deal ever in South Africa. The deal, but not the numbers, was confirmed in September.
As The Media Yearbook reported in January this year, WPP bought into digital agency Quirk, and acquired Gloo through WPP-owned Ogilvy & Mather. WPP holding group Grey acquired a majority stake in The Volcano Group, while one of its operating companies, JWT, bought a majority stake in creative agency, The Hardy Boys. Publicis Groupe bought integrated advertising agency MACHINE, merging with Publicis South Africa to form Publicis Machine. It also acquired full service digital agency, Prima Integrated Marketing, OwenKessel (which was merged with Leo Burnett), Lighthouse Digital (which was merged with Starcom MediaVest) and BrandsRock, which merged with Saatchi & Saatchi to form Saatchi BrandsRock. Publicis’ ZenithOptimedia bought Applied Media Logic too.
CEO of Omnicom in South Africa, Josh Dovey, says acquisitions are how the advertising industry constantly reinvents itself. “It’s not new. The deal we did with the founders of Page Three Media (which is now PHD SA) was very successful for them and us. We got one of the best strategic agencies in SA and they got access to global clients, network tools and research. We have several more acquisitions in the pipeline.”
Dovey says most of South Africa’s major media agencies are already owned in whole or in part by global networks and have been for many years. “OMG SA is 55% owned by Omnicom Inc, 20% by our empowerment partners and 25% by ourselves. Late entrants to the South African market like Carat and Publicis have had to buy the scraps and probably overpaid,” he says. Another issue that foreign-owned agencies are grappling with is the subsequent parachuting in of global talent to lead them.
Impact on client/agency relationships
Founder and CEO of the R2C Group in the US, Michelle Cardinal, in a post titled Media agencies: Bigger is not better, says, “Brands are having trust issues with big agency partners. Most of the time, big agency clients don’t even know what they’re buying nor do they question the purchase.
“So, the agencies, which likely bought billions in upfront ad deals, are forced to turn around and use the network and cable slots for their clients’ ads, even if the channel, audience and time slots are wrong.” She adds, “Some are questioning whether agencies are using their clients’ ignorance to their advantage; thus the trust issue.”
In his LondonBlog for MediaPost Sean Hargrave says advertisers are getting increasingly fed up with being ‘sold’ in global deals with massive advertising networks which they don’t feel serve their best interests and which they wouldn’t necessarily have signed up to themselves if they had local autonomy. He also explains that people running the businesses regionally are rarely consulted. “To them, the price central HQ pays for its media and the quality of the champagne poured at the brass’ private yacht party in Cannes, are less important than local control and, most of all, the two huge issues which kind of melt in to one: data and transparency,” says Hargrave.
He believes data could be at the centre of the rush of media reviews taking place at present. “Big brands are concerned they’re not getting all their data back and they’re pretty horrified to think their media could be bought through a massive trading desk where the data it produces could be mixed up with other brands and might even get lost in transit,” he explains.
Hotchkiss says technology is at the heart of the deals, agency reviews and deteriorating the client/agency relationship. His theory is that global agencies are “trying to patch things up” by buying niche shops with tech expertise to “re-spark the flame”. Also that agencies are the children of a marketplace that is rapidly disappearing. “This is a highly dynamic, cyclical market. Straight line strategic planning doesn’t work here. And straight line strategic planning is a fundamental requirement of an agency relationship,” he reckons.
What was once the agency’s strength – its position as a bridge between existing networks – has turned into its greatest vulnerability. “Technology has essentially removed the gaps in the market itself, allowing clients to become more effectively linked to natural networks of customers through emerging channels that are also increasingly mediated by technology,” says Hotchkiss.
“Middlemen are no longer needed. Those gaps have disappeared. But the gap that has always been there, between the agent and the client, not only still exists, but is widening with the breakdown of the relationship. Agencies are like bridges without a river to span.”
How it will all play out remains to be seen.
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