WPP double deal shows influencer agencies are top network M&A target
A recent ‘flurry’ of deals for specialist influencer agencies indicates the sector has become important industry crossroads, say M&A experts.
Influencer agencies are increasingly attractive to big industry players. What’s behind the trend? / Unsplash
British holding company WPP made two significant deals late last month. It acquired Obviously and Goat – both agencies active in the social and influencer space, both in the same week, both with the intention of making its established flagship networks GroupM and VMLY&R more competitive.
The timing might be a coincidence, but the deals themselves aren’t. Indeed, they’re a sign that confirms the industry’s biggest players have come to see the influencer sector as a serious business.
According to Barry Dudley, partner at media and marketing M&A advisors Green Square, WPP’s pair of deals showed the agency giant was fighting to keep up with competitors.
“When these two landed, it looked to me like WPP was playing catch-up. They bought probably the two biggest [agencies] they could get their hands on… and they’re not going to go hungry for work,” he says.
“They’re good things to have bought, it just feels like they got to the party quite late.”
Before WPP’s move, Publicis Groupe sprung for Perlu, while S4 acquired XX Artists last year. Across the Atlantic, Omnicom launched LevelUp OAC, an influencer and gaming practice.
Green Square analysis shows that in addition to Obviously and Goat, the last six months have seen agency acquisitions by a range of groups in a lower weight class – including deals for Social Chain by Brave Bison, Born Social by Croud and Populate Social by Mission Group. There’s also been activity from lesser-known names such as Keywords Studios, Dolphin Entertainment and Velstar. Farther back, you might look to Plus Company’s deal to merge Singaporean influencer shop Kobe into We Are Social.
Chris Karl, chief business development officer at M&A advisory JEGI Clarity, tells The Drum that “there’s been a flurry of activity around the holding companies.”
“Influencer marketing has grown up, it’s past the adolescent stage now. We suspect that the influencer market is already bigger than what people project, though it’s very hard to measure.”
He suggests the key motivator is the potential for influencer capabilities to boost integrated marketing services offers. “For years [holding companies] have been talking about integrating creative and media services more proactively. That confluence basically is influencer marketing.”
“Media and creative were split up years ago and this trend is a sign that the big holding companies recognize the need to integrate for the benefit of their clients. It is definitely part of that cycle of integrating creative and media deeply.”
For Andreas Roell, managing director at New York M&A advisory Madison Alley, this explains WPP’s March move to rope in Goat. “Smart organizations are realizing that they have to transform themselves as creative shops. They have to change internally, so they’re looking for organizations like Goat, to come in and not just check against a box or offer a single capability, but to help drive internal change.”
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“For the last five years, the networks have all been consolidating down their brands, trying to simplify the offer. It’s interesting now to see them acquiring, that they’re putting their money here,” says Waypoint’s Jim Houghton.
The ‘influencer sector’ itself covers a fair amount of variety; agencies might specialize in talent or influencer discovery and management, in measuring the performance of spend placed against influencer activations, or in managing influencer campaigns and content at scale. Plenty of aim to do all that and more.
Reuben Hendell, operating partner at Madison Alley, suggests that managing influencers – matchmaking and tracking partnerships – on a level that meets the needs of big, global clients is an area where most holding companies are deficient.
“It’s become a world of creators. But the big holding companies don’t have influencer management capabilities at a global scale. They’re all scrambling to figure out how they can add value in that world of influencer management.”
Houghton says that there’s a chance that the infrastructure and data expertise already within holding companies could add significant value to influencer management specialists, something they won’t be able to achieve as indies. “A lot of these companies are just operating giant spreadsheets. It is pretty rudimentary stuff. The systems that support them are lagging behind where some of the networks are at.”
Client demand for influencer marketing as a potential alternative to expensive, established channels like TV is still rising, Karl suggests. “We’ve heard anecdotally that there are some big budgets being moved in from other legacy media channels into influencer this year.”
Big agency groups will therefore look to acquire greater capabilities to meet that demand, argues Michael Seidler, founder and chief executive of Madison Alley.
“Leading brands are recognizing this is a new way to connect with consumers, to advocate for brands and to create content. Agencies and other groups are taking notice and trying to get ahead of the highest growth sectors to acquire into,” he says.
At the same time, challenger-sized marketing groups such as Dept, Bounteous or Willowtree – all backed by deep-pocketed private equity firms – are forming a new bloc of competition for marketing budgets.
“There’s a lot of upstarts that are private equity-backed that have reached a fairly significant scale,” says Karl. “They don’t have to be big to be disruptive,” and recent deals, he says, show that “the holding companies are acting now to take back some ground.”
Giants like WPP or Publicis naturally can’t afford to stand aside and let those agencies grow and grow. But their success, and increasingly large size, also mean they’re surer bets for acquirers. Houghton points out that Goat has “been going like an absolute train” since a major injection of capital four years ago.
“It was a relatively small business when it took its first private equity investment a couple of years back. It’s probably quadrupled in profits in the meantime. If you’re an investor, you’re not getting those kinds of returns from any other sector of the economy,” he explains. “Typically the model for networks is high quality, low risk. It’s kind of easier for the network's to be buyers of businesses like that where a market is growing so fast.”
A potential ban of TikTok, a major platform for influencers right now, casts a shadow over this sector. Could it be pushing the backers of influencer agencies to sell now, while the going’s good? Houghton suggests not. “If you haven’t done your deal now, you might be a bit late in the game.”
In any case, none of the M&A experts we spoke to for this story believed an outright US ban on TikTok was likely.
“I’ll probably find in two months’ time that I’ll regret saying this, but most people I know in the States aren’t expecting a full ban. The argument is, if 150 million users in the US can’t use TikTok, they’ll go somewhere else.”
Roell notes that smart businesses will be able to apply their expertise and services to other platforms, even if agencies with straightforward business models depending on TikTok are “probably a little jittery.”
“Say that TikTok is banned in the US. Do you believe that Gen Z and millennials will stop using the internet? Yeah, right. They’ll put their mind to other outlets. Short-form video has been adopted by every social media platform at this point; they’re going to go somewhere else to do the same expression or some new entity will pop up.”