What’s next in M&As: In search of the next mega-merger

A new re­port finds a greater ar­ray of both buy­ers and sellers in the mar­coms space.

Campaign Middle East - - FRONT PAGE - A Year To Be Con­tent With: A Re­view Of M&A Ac­tiv­ity And The Global Mar­ket­ing Ser­vices Net­works is pub­lished by JEGI and Clar­ity By Gideon Spanier

Ad­ver­tis­ing thrives on ac­qui­si­tions and new blood, so the state of agency merg­ers and ac­qui­si­tions can re­veal a lot about the wider in­dus­try.

A new re­port by the in­vest­ment banks JEGI and Clar­ity, which are based in New York and Lon­don re­spec­tively, looks at how things have been chang­ing.

The study iden­ti­fies sev­eral trends. First, there is a grow­ing range of buy­ers be­yond the tra­di­tional ‘big six’ ad­ver­tis­ing hold­ing groups. Se­cond, sellers are more var­ied as agen­cies are in­volved in a broader spread of mar­ket­ing dis­ci­plines of which the lines be­tween those dis­ci­plines are blur­ring. Third, the M&A mar­ket has be­come more in­ter­na­tional, fu­elled by tech­nol­ogy and rel­a­tively buoy­ant eco­nomic con­di­tions.

Mar­cus Anselm, a part­ner at Clar­ity who worked on the sale of Walker Me­dia (since re­named Blue 449) to Publi­cis Groupe and Adam & Eve to Om­ni­com, says: “If you were run­ning a com­mu­ni­ca­tions agency five years ago, the list of buy­ers would have been X num­ber of names that most peo­ple would have heard of.

“Wind for­ward to 2016 and the list of names is so much big­ger now – the con­sult­ing firms, the ac­coun­tancy gi­ants, the soft­ware com­pa­nies and so on. Many of them are global and in lots of dif­fer­ent lo­ca­tions.”

This shift has been part of the ra­tio­nale for JEGI and Clar­ity to an­nounce a deeper part­ner­ship this week and a joint re­brand­ing to re­flect the fact that clients want ‘boots on the ground’ in dif­fer­ent con­ti­nents to know they have the best deal.

WPP dom­i­nates

The ‘big six’ ad hold­ing groups are still driv­ing takeover ac­tiv­ity, buy­ing 116 agen­cies be­tween them last year, ac­cord­ing to the re­port. Al­though the num­ber of deals fell from 132 in 2014, it was on a par with the past five years, when there have been roughly 115 trans­ac­tions an­nu­ally.

WPP, the big­gest group in the ‘big six’, main­tained its po­si­tion as the top buyer. It ac­quired 44 agen­cies in 2015 – in­clud­ing the dig­i­tal out­fits Essence and the Ex­change Lab – com­pared with 64 a year ear­lier.

Dentsu over­took Publi­cis to be­come the se­cond-mostac­tive player de­spite be­ing only the world’s fifth-big­gest ad group. Dentsu’s ac­qui­si­tion of 26 agen­cies’ in­clud­ing the con­tent pub­lisher John Brown, was sig­nif­i­cantly up on its 16 pur­chases in 2014. In con­trast, Publi­cis only made 22 deals last year – down from 27 in 2014, which in­cluded the £ 2.5 bil­lion takeover of the dig­i­tal con­sult­ing com­pany Sapi­ent.

Over the past eight years, in­clud­ing the 2008-2009 down­turn, WPP, Publi­cis and Dentsu stand out as the most ac­quis­i­tive, ahead of Om­ni­com, In­ter­pub­lic and Havas.

In­flux of new en­trants

The deals by the “big six” are only one mea­sure of ac­tiv­ity be­cause of the in­flux of new en­trants. Con­sult­ing and ac­coun­tancy com­pa­nies such as Deloitte and Ac­cen­ture, me­dia own­ers such as News Corp and Time Inc and tech­nol­ogy groups such as Sales­force have all been mak­ing ac­qui­si­tions – par­tic­u­larly in ar­eas such as au­to­ma­tion, con­tent cre­ation, dig­i­tal trans­for­ma­tion, e-com­merce, mo­bile and so­cial. “We con­tinue to wit­ness a wider scope of ac­quir­ers in the mar­ket­ing arena,” the re­port states, cit­ing News Corp’s pur­chase of the so­cial video com­pany Un­ruly as an ex­am­ple.

Growth of con­tent mar­ket­ing

The Un­ruly deal points to an­other trend: the growth in con­tent cre­ation by brands and the dig­i­tal dis­tri­bu­tion of that con­tent through so­cial and pro­gram­matic plat­forms.

The study iden­ti­fies three growth driv­ers: the rise of con­tent dis­tri­bu­tion plat­forms such as Per­co­late and NewsCred, the im­por­tance of data to tar­get that dis­tri­bu­tion, and the threat of ad-block­ing, which makes cre­at­ing en­gag­ing con­tent more im­por­tant.

The next mega-deal

The great M&A deal that didn’t hap­pen was the Publi­cis/Om­ni­com tie-up, which col­lapsed in 2014. The re­port sug­gests that the small­est of the big six, Havas – which is con­trolled by Vin­cent Bol­loré – is the one to watch as he also chairs the me­dia gi­ant Vivendi, the owner of Canal+ and Uni­ver­sal Mu­sic Group. He is push­ing for the con­tent and ad­ver­tis­ing busi­nesses to ‘col­lab­o­rate’ and ‘it is cer­tainly a merger the mar­ket is look­ing out for’.

Good short-term out­look

Leav­ing aside stock mar­ket jit­ters sur­round­ing China, the study is bullish about the short-term out­look. Cor­po­rate bal­ance sheets are mostly in good shape, pri­vate-equity com­pa­nies such as Chime’s owner, Prov­i­dence, are sit­ting on cash, new hold­ing groups in­clud­ing Be Heard and The Stag­well Group have emerged, and there are the Olympics and the United States pres­i­den­tial elec­tions this year.

“We do think mo­men­tum will con­tinue in 2016. In in­de­pen­dent agency sellers’ minds, it feels like a good win­dow,” Anselm says. “But, at the back end of 2016, the vis­i­bil­ity is less clear. Some peo­ple who are think­ing ‘Should I sell this year or next?’ may say: ‘We’ll get a bet­ter val­u­a­tion this year off a slightly smaller profit than wait­ing un­til 2017.’

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