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Domino effect? – How is the independent agency sector being affected by current spate of acquisitions?

During a summer of unsettled weather, the UK marketing and digital sector is currently experiencing a wind of change. A number of high level acquisitions have taken place in recent weeks, spanning a number of sectors, not least digital.

These include WPP’s £540m acquisition of AKQA, Chime Communications disposal of the Bell Pottinger business to its own directors, LBi’s admission to acquisition talks with Omnicom, Yammer entering the Microsoft fold, Adam and Eve by DDB Worldwide and advertising monolith BBH becoming wholly owned by Publicis Groupe. It’s all going off. Further acquisitions have continued to take place in the last 24 hours alone, with Twenty 20 Media Vision being bought over by Porta Communications and the Pink Fizz acquisition of Howie Communications.

But what does this mean for the independent sector watching these companies join the network fold? Reaction has been mixed. The views to these deals seem to indicate that some have been initiated to resuscitate the holding company’s flagging offer, while others plug a skillset gap.

Douglas McCabe, media analyst for Enders Analysis, says that the direction is clear; “the larger agencies are acquiring the creative and technical skills they increasingly need as part of their service solution in the future. A certain independent 'edge' is clearly part of such an asset, as brands look to engage audiences with techniques beyond traditional advertising.”

Nicola Mendelsohn, chairman of Karmarama, which only recently itself acquired Krayon London, and chair of the IPA, adds that she believes this to be an “exciting time” for the industry; “Industries that have momentum and have growth indicates positive signs, which can only be a good thing.”

Mendelsohn adds that growth in marketing spend, indicated by the previous Bellweather Report for Q1, shows signs that confidence amongst marketer had risen. Now then, it would seem, after a couple of years of belt tightening, is a good time to invest for marketing services agencies.

According to Tina Judic, managing director of Found, the marketplace is buoyant, but it is clear that digital is leading now clearly leading the way, where unique specialism is being demanded in order to most effectively ensure brand targeting and engagement; “Should smaller independent agencies feel threatened by this? I don’t think so,” adds Judic. “If anything, such moves, yet to be shown to be successful, are a thumbs up that we’ve got something that the big guys want – and in such a fast-paced market, this is always going to be the case.”

Newly appointed managing director of performance marketing company AffiliateTraction, Nicky McShane, who has joined the company to lead its entry into the UK and European marketplace, believes that the acquisitions support the importance of independent agencies and does not see any threat to the indie sector; “Specialism and creativity are obviously key commodities now and the bigger network's templated service just isn't good enough. When you specialise you become a complete expert. That becomes impossible when you generalise.”

Dale Gall, CEO of independent digital marketing agency Profero Group, also believes that a generalised offering, in the current environment, is going to be all the more difficult for agencies without global scale; “These acquisitions carve out more room for independent agencies, however increasingly it’s a scale game. You don’t want to be in the middle, that’s a hard place to be. You either have to have global reach or you have to be pretty niche in the digital space. If you’re just a creative shop in the digital space, where increasingly some of the above-the-line agencies are doing good ideas in that space, unless you’ve got scale and the true ability to prove that you can deliver that to some point-of-difference, then you’re going to struggle.”

Commenting on the acquisitions of AKQA and potentially LBi, Gall continued; “There’s a hugely powerful sector between creative, digital and media which is really critical to the needs of clients, is very demonstrable and is transforming the model quite rapidly. I see a big synergy between those holding companies media offering and the digital shops that they’ve bought.”

As to what it means for independent companies, Tarek Nseir, CEO of TH_NK, another independent digital player, says that consolidation will immediately push the company higher when it comes to independent lists, while also “liberating” talent to good agencies; "We are finding that clients who are looking for very strong core competencies in digital strategy and innovation are also looking for the ability to command and control action and delivery. As an independent controlling all of our own resources without a diplomatic layer we can offer that in spades.”

Nicky Unsworth, who heads up BJL, a member of independent marketing network, Tribe Global, believes that now is a good time for agencies to aim for growth, describing good agencies as offering ‘strong and agile strategic thinking’ and using partnerships in order to strengthen that offer and grow reach.

“Clients like the ‘owner-run-and-managed’ model because our success is their success and by their success, we have a massive vested interest in making things work. Independents, I suspect are faring relatively well because I suspect clients see the value of that.”

In terms of what comes out of the acquisitions for the rest of the industry, Unsworth believes that, for now, other independents must learn lessons from what these agencies have been doing well.

“Their acquisitions don’t necessarily open up any space, the fact is it will take a while for the culture in those agencies to change. They won’t lose clients having been acquired as they will carry on doing what they’ve been doing really well. So others must look at them, see what they’ve been doing really well and learn from it,” she explained.

“Having these numbers of deals in a pretty short period of time shows that this is a growth sector, it’s an exciting area and that is good for all agencies of all sizes,” adds Mendelsohn, who believes that the moment has caused a domino effect in creating other deals.

Ultimately though, the industry has proven that clients will always want to work to exciting agencies that offer original and effective creative solutions, no matter what their size or reach. Brilliant work can be produced by any company, independent or in the form of a network owned agency, such was the meteoric rise of Adam & Eve as a recent example. Should that exciting creative come an independent house however, it's only a matter of time before the networks come calling.

So...who’s next?

Image courtesy of Shutterstock

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