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Marketing deals: Is the real future money in the margins?


By Tony Walford, Founder

February 1, 2013 | 6 min read

Once again, most of the recent acquisition activity has been out in the margins, rather than the mainstream. That’s partly because there are very few “mainstream” agencies (small or large) left to acquire; and because ambitious smaller buyers sense that in our digital world, the future lies in what are now marginal activities.

In the margins: Cello has bought healthcare specialist Mash

Cello, a medium sized group which specialises in research, insight and strategic marketing, and which listed on the AIM back in 2004, has just acquired Mash Health, an award-winning healthcare specialist with offices in London and New Jersey.

Initial consideration is approximately £600,000 (£500,000 of it in cash, with the balance in Cello shares), with an earn-out of up to £900,000. For the year to 31 March 2012, Mash had an unaudited turnover of £1.5m, gross profits of £1.1m and profits before tax of £100,000. Net assets as at 31 March 2012 were £300,000, including cash of £200,000.

Mash specialises in providing consultancy and communications services to pharmaceutical, “nutraceutical” and consumer healthcare clients including Reckitt Benckiser, GSK, BMS, Bayer, J&J and Danone. Whilst this is a small deal, looking at that client list, Mash’s books and how well it should fit in with Cello’s healthcare division Cello Health, I’d venture that the acquirer has got itself a bit of a bargain.

Even though Cello has paid out 6x EBIT upfront, in the overall scheme of things the absolute cash amount is small (and we’ll assume some of the cash it came with was surplus) so £600k is not a bad price for what is effectively a savvy recruitment of quality people, with good pharma-market expansion experience and the acquisition of a blue-chip client list.

Not only will Mash complement Cello Health’s insight, advisory and evidence based capabilities in the ethical pharmaceutical area, it also gives it enhanced expertise in the consumer health area.

As we’ve said many times before in these blogs, pharma marketing is not “glamorous” in the ways that cars, consumer goods or retail marketing are. But pharma is (according to the CIA World Factbook 2011) the world’s fifth-biggest industry, behind food, energy, arms and finance, and ahead of retail, tourism, autos, illicit drugs and the sex trade. By some estimates it’s a global industry worth upwards of $2 trillion annually. Pharma marketing has always been tightly regulated, but with an increasing trend in developed countries towards self-medication and patient awareness, the rules about what can be marketed to whom are being relaxed.

There’s an enormous long-term opportunity – worth billions - out there for experienced specialists and I predict that we’ll see a lot more “boutique” pharma specialists being snapped up this year.

The other marketing services sector that’s full of growth potential is PR. More than any other type of marcomms specialisation, PR has changed with the advent of digital. It’s less about old-fashioned “spin”, or writing press releases to send to an ungrateful media, but about “reputation management”. This can encompass a number of things – not only “crisis management” (handling the fallout when a company or brand messes things up) – but is mostly about telling stories, monitoring, brand-building, and seeding ideas. The decline of newspapers and linear broadcasting, coupled with the growth in social media, blogging, and the desire for instant news (along with the ability to deliver it) have forced the change.

An intriguing aspect of the digital revolution as regards PR is that some of it can be automated. Hitting the phones to speak to journalists remains important of course, but software to seed stories is increasingly being used. It was interesting, therefore, to note the acquisition last week of the oddly-named Adequate Systems by French online reputation specialist Augure.

Founded in 2002, and with offices in France, Spain and the UK, Augure is one of a new breed of PR agency. It claims to “provide communications and PR professionals with the reference cloud-based platform to grow their influence and steer their brand reputation in the media and in social networks.” Via its software, it offers clients (some “traditional” PR operators, but also many brands and multinationals) the opportunity to monitor their online and offline mentions, target key journalists and influencers, deploy multi-channel campaigns and measure their impact on the media. Last year it snapped up iMente, the leading media monitor in Spain.

It now has over 100 collaborators, 1,000 clients and around 10,000 users in Europe, including 70% of CAC (the French equivalent of the FTSE) companies and over 50% of the PR agencies in France. With this latest acquisition it can really start to build pan-European, and then global, scale.

Buying Adequate, one of the leading PR software specialists in France, doubles Augure’s client base in its home country; strengthens its portfolio of SMBs and mid-cap companies; and broadens its offer so that it can pitch in-house and to agency communications operations of all sizes. It has also been said that some of Adequate’s systems are simpler than Augure’s, so they will have more appeal to smaller clients. Both companies will operate independently until next year, when a period of consolidation will begin. But it’s another one of those deals that’s strategically and synergistically good for both parties: Augure gets more software, skilled staff and can broaden its offer; and Adequate gets investment and opportunities to deploy its software in more markets (Spain will be the first).

Next time, among other things, we'll be looking at what the Publicis acquisition of LBi - which was finally completed this week - might mean for M&A activity over the coming year.

Tony Walford is a partner at Green Square, corporate finance advisors to the media and marketing sector.


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