Why this year’s marcomms mergers won’t be AOL-TimeWarner flops
The title for our particular section of the Drum is “Mergers & Acquisitions”. Thus far, most of our blog posts have been about acquisitions. However, over the past fortnight or so there have been a number of mergers that I think are worthy of a closer look.
The merger of AOL and Time Warner proved a disaster
A merger is of course different from an acquisition. Both bring together two separate entities, usually for commercial advantage (economies of scale, diversifying a portfolio, gaining market share, etc.). In an acquisition one entity clearly takes control of the other, whereas mergers are between mutually consenting parties - a merger can, on paper at least (but not always, something we’ll come to in a moment), be seen as an agreement of two equals which bring benefits to all sides. They are perhaps most common in the pharmaceutical industry, but occur everywhere in business, including marketing services.
Mergers aren’t necessarily virtuous in themselves, nor are they any “better” or “worse” than takeovers. For every Exxon-Mobil or Disney-Pixar – mergers that create real shareholder value – there are disasters such as Daimler-Chrysler, or an AOL-TimeWarner, which do the exact opposite; hopefully the mergers we’re looking at this week will prove to be more successful.
On 20 February, Cirrus, a brand engagement and corporate leadership consultancy agency based in Wilmslow, Cheshire and Xancam, a much smaller, Oxford-based talent specialist announced their merger.
Xancam works in an interesting space – its in-house team of psychologists works with blue-chip companies like eBay, Royal Mail, BAT, PepsiCo and BAA (as well as government agencies like DEFRA) to identify talent and then develop it; it’s a kind of premium outsourced HR department, or a cross between a headhunter and a consultant.
Under the deal, Xancam will keep all its own branding (which it may not have done had it been acquired by Cirrus) and identity, but will become a company operating under the Cirrus Group umbrella.
Cirrus actually has form in the merger space – last May it merged with The Raft, a marketing comms specialist, which is now fully integrated into the Cirrus group. Whether Xancam will go the same way remains to be seen: it’s interesting however, that mergers are rarely equal – one entity is usually financially and culturally stronger and – not always intentionally – subsumes the other with the name of the subsumed falling away. And Cirrus, while only employing around 50 people, is an ambitious company that I think will end up being a big player in its business space and in its region.
But that’s for the future. Returning to the present, Xancam founder Dr Maria Yapp has described the merger as “a true meeting of minds”. For once, it appears that’s not just a business platitude. The two companies’ offers complement each other – talent development and brand engagement go together well.
Next up is the merger between independent PR firm Threepipe Communications and full-service digital agency Blowfish Digital. Of all the marcomms channels, PR has perhaps been most changed by the digital revolution: very few now just write press releases and send them out to the media or engage in a spot of crisis management. Any decent PR agency will now also offer social media, SEO, search, media planning, events, mobile, PPC, strategic consultancy and the like.
And so it is here. The newly-merged entity, which will trade under the Threepipe banner from new offices in Holborn in Central London, can offer clients a fully integrated service covering digital media, search, social media, content and data. Again, it’s two sets of complementary skills coming together. It has always been difficult to measure the effect of PR (except with blunt or underdeveloped tools), but with Blowfish’s analytics and evaluation skills, Threepipe should be able to start demonstrating robust ROI to clients.
Slightly different again is the merger between Manchester agencies GAP PR & Marketing (which also has an office in the Lake District) and Creation ADM. The two companies, who have shared offices for some time, will now offer an integrated blend of PR, marketing and creative services and be known as Creation PR.
The move comes after what both firms describe as “a record 2012″ and will take total staff numbers to 10, split equally between PR and design and with a client base that includes the Mistoria Group, Danone, 3M, BBC North and KRO Bars and Restaurants. Again, there’s a lot of synergy between PR consultancy and branding, social media and design.
Finally, there’s the Transatlantic merger between New York-based Stein + Partners Brand Activation and UK-based IAS B2B Marketing (the latter will be familiar to Drum readers as toppers of The Drum’s league of most awarded UK agencies). The two have agreed to launch a new, combined agency named SteinIAS.
IAS, which is headquartered in Cheshire, is strong in the B2B space (it launched as a specialist back in 1973) and is clients range from Atos, BP Castrol and the Chicago Board Options Exchange to KPMG, Pearson, Nespresso and Wolters Kluwer. Stein + Partners has been on the scene a mere 25 years, but is slightly larger, and has just won BtoB magazine’s award for 2013 Agency of the Year (Mid-Sized).
The new SteinIAS launches with more than 100 staff (in planning, creative, digital, PR, social, mobile and content), revenues of over $13m and offices in New York, London, Manchester, Paris and a newly-opened Asian bridgehead in Shanghai. Each of these offices will continue to conduct business as usual, with each hub managing its historic client base, and key executives and teams will remain dedicated to their current accounts.
The new agency now has scale for the larger international B2B accounts that may have eluded the two firms when they were separate. Both companies have gone on record as saying how similar their processes, approach and focus are; this is a merger to build scale to attract global clients rather than marrying complementary skills to create a fully-integrated offering.
And here’s an indication of the new company’s ambition: "We intend to create a 'best of the best' alternative to holding company and very large agency networks. We bring a rare blend of intensity, creativity, technology-enablement and synchronization to the table," says Tom Stein, president of IAS Americas. "This is decidedly not business-to-business as usual."
Bold talk. But how are we to be sure that this merger, or any of the other three we’ve looked at, won’t just be small-scale versions of the AOL-TimeWarner disaster. Back in 2000 the two companies merged to create a £221bn operation. By the time the two split almost a decade later, AOL was worth just one-hundredth of its pre-merger value, and TimeWarner about a fifth. Investors lost billions and neither company has ever really recovered.
Why did this merger fail? Partly, it was scuppered by the dotcom bubble. Although the deal was initially seen as a match made in M&A heaven - one of the world's biggest media content companies merging with one of the largest distributors of internet content - the two companies were ill-matched culturally, and didn’t really understand each other’s businesses. One analyst described it as “trying to mate a horse with a dog”. Expected synergies became negative synergies and the much-hyped marrying of content and distribution never worked.
With the four mergers described above, the case is far more compelling: these companies understand each other, and to outside observers seem to fit together well. They are all focused on particular areas of expertise and have merged to either bring together complementary skills to create more compelling integrated offers, or to create the kind of scale that global blue-chips find attractive.
I’ll take a punt and say that a decade hence, the principals of, and investors in, the small companies we’ve highlighted in this feature will have good reason to feel rather happier than those who poured money into the corporate world’s most infamous merger flop.
Andrew Moss is a partner at Green Square, corporate finance advisors to the media and marketing sector.