Over the summer two of the biggest names in the European agency world have been acquired by big networks. In June AKQA was bought by WPP in a deal that valued the digital agency at $540m. Then last month Publicis bought LBi for €416m.
It seems striking that two such big deals should happen so close together, but industry watchers point to a number of reasons why this should be, and why the M&A market is hot right now.
The first reason is that the big agency networks, and particularly WPP and Publicis, have a massive appetite for digital capacity. Both have announced big targets for the amount of revenue that they want to generate from digital, targets that would be tough to hit from organic growth alone. What’s more, that organic process would be too slow for networks that are judged on short-term profit growth.
Digital is also growing faster than the networks’ traditional advertising businesses so, as Keith Hunt, managing partner of M&A advisers Results International, says, the networks are investing in digital “just as they’re investing in developing markets”.
And finally these and other deals, such as the one that recently took UK independent digital agency Fortune Cookie into WPP’s Possible, are happening because the money is available to do them.
But do these acquisitions signal anything beyond the agency world? They certainly show that digital marketing continues to grow in importance. The IAB/PwC figures for UK digital marketing spend for the first half of this year are due out this month, but the figures for last year showed a year-on-year increase of 14.4% at a time when general marketing budgets were stagnant at best.
It’s harder to say whether they reflect a continuing desire among clients to rationalise their agencies, as seemed to be the case earlier in the recession. A couple of years ago the cycle seemed to be turning in favour of reduced numbers of agencies in order to cut down the amount of time spent managing relationships with them and therefore reduce costs.
Such generalisations are harder now. One client/agency matchmaker suggests that few clients want one agency to do everything; rather they prefer to have more control over where they spend their budget, but other industry watchers say there is still a move among marketers to consolidate the number of agencies they use, partly driven by globalisation and the desire to work through the same agencies across territories; and partly by the integration of off- and online marketing that is blurring specialisations.
This view was echoed at Dmexco by Nick Brien, chairman and CEO of McCann Worldgroup. “Brands want the biggest impact at the lowest cost,” he said, “and they don’t care who they collaborate with to achieve that.”
Hunt also sees the hand of procurement departments in this, with their tendency to cut the number of suppliers.
“We’ve seen reductions as brutal as from 50 suppliers to five,” he says. “If you’re going to be one of the five you need to be able to offer a wide range of services.”
What all these acquisitions tend to suggest is that the days of pureplay digital specialism may be numbered. As more marketers start to look at attribution modeling and gaining a clearer understanding of where their budget should be spent for best results, agencies or agency groups that can offer a full range of off- and online services should have three advantages. They should be a more credible source of advice about where budget should be spent than a specialist can be; they should be able to deliver integration across channels more easily and effectively; and they should be able to offer better prices by virtue of doing more work.
With money cheap and consumer appetite for interactive media growing, expect further acquisitions. The only brake on the feeding frenzy is likely to be the dwindling numbers of established independent agencies to buy.