Smaller firms being taken over by bigger ones
New trend unveiling where consultancies are buying out agencies
A NEW era is unfolding in the advertising world with global consultancies buying out agencies.
Media analysts expect this trend to be on the rise and to intensify over the years with technological advancement.
Media analysts tells Star Biz Week that consultancies like Deloitte, Mckinsey, Accenture, KPMG and Price water house Coopers are on the lookout to acquire agencies to expand their revenue streams and customer base in the region.
“It is not a bad thing as the acquisitions will pave the way for greater client touch points and the talents acquired will help spearhead clients’ brands on regional and global platforms. It’s like a win-win situation although there may be initial hiccups. We expect the trend for consultancies to acquire agencies, especially the digital agencies to further gain momentum in Malaysia,‘‘ a media analyst adds.
At the moment, this trend is not so rampant in the country but will gain traction moving forward, he explains.
Industry watchers agree the core trademark of creativity will still remain intact although the strategy and research may differ post acquisition.
An industry expert notes that agencies can capitalise on the data build-up by consultancies for better production of brand campaigns and points of contact on the digital front, for example.
He adds that conservative ad agencies should take heed and innovate or possibly embark on a merger and acquisition amid consultancies worldwide beginning to win jobs, especially on the digital side, which was previously handled by agencies.
This week McKinsey & Co announced the acquisition of VLT Labs, a Malaysian digital business builder and product development studio. VLT Labs is a subsidiary of independent agency VLT Group
McKinsey says VLT Labs’ talent will further boost the company’s digital capabilities in Asia where demand is fast growing and with a view to help local organisations become regional and global leaders in a digital age.
Senior partner and leader of McKinsey Digital Labs Asia Pacific Michael Gryseels says in a statement that as clients face rapid disruption of business, the company accelerates its pace of change to support them in their digital transformation journey.
The Kuala Lumpur-based VLT Labs has digital product engineering and design experience, specialising in helping corporations to conceptualise, design and build digital products.
Commenting on management consultancies buyout of agencies, M&C Saatchi Malaysia general manager Lee Poh Li says: “Consultancy firms and ad agencies are currently going through rapid changes with the decline in revenue over the years.
“Everyone is looking for new opportunities and possibilities. I do see a trend where bigger firms take over smaller ones and this will probably change the ad industry in two to three years time. A new formation of ad agencies with a differ- ent model will take on.”
On how these acquisitions will impact the business model of ad agencies, she believes ad agencies will still rely on selling creative services and work.
Although this model will be maintained but perhaps an enhanced expertise in strategy and research is what changes the game, Lee adds. “I think it’s a good move for consultancy firms. Public relation firms alike are acquiring agencies as well. Every business is outward looking for new revenue streams.”
Meanwhile, Dentsu Aegis Network Malaysia chief executive officer Nicky Lim says: “Competition is always good for any industry, but an over-competitive environment will just floor the margins for everyone.
“That said, we don’t think the acquisitions are a direct competition to ad agencies per se. It is more like consultancies themselves are aiming against each other.
“Agencies still understand brand management, media strategies and production best. However, it is high time we start thinking and adopting a new value model to stay competitive and relevant.”
On views of the trends of more consultancy firms buying out ad agencies going forward, Lim says acquisition is relatively easy at the beginning stage, but when it comes down to integration of services and culture, that is when the real problems surface.
“The question is who will manage who?” he asks. “Consultancy culture differs drastically from agencies, this will give other players a good lead time to evolve their business model as opposed to taking the M&A route.
“Since Accenture started this trend in this region, I think we will see more of this moving forward, and bear in mind, it doesn’t stop reverse acquisitions as well. But when companies become too big, it’s hard to maintain agility in this business,’’ he notes.
To stay competitive and relevant, Lim says Dentsu Aegis Network (DAN) Malaysia has adopted the “Eigyo” model, which has long been a practice in Dentsu Inc in Japan.
“The concept of Eigyo is beyond client assignment – our way moving forward in effective integration is to appoint brand stewards, who serve as gatekeepers of the client’s brands and business. The marketplace is moving in breakneck speed due to heavy digitisation and datafication.
“While consulting our clients, one of their biggest challenges is to increase the speed and efficiency of marketing operations. As such, we have decided to appoint ‘chief marketing officer equivalents’ of the client’s business on our side to ensure they have a single touch point for all their marketing and communication solution needs.”
With the dawn of DAN brand stewardship, essentially an improved concept of the ingrained Eigyo culture, he says the agency is determined to be truly solution-based for clients that will impact their bottomline.
There are many upsides to inculcating such culture in our agencies because we think the agency of the future is one where at its heart, is the client’s business first and everything else second, Lim notes.