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What Dentsu Aegis' most recent buys tell us about where it's heading

Partners at Green Square, Corporate Finance Advisors to the media and marketing sector, cast their eyes over the latest industry deals and look ahead to the next tranche of acquisitions.

Tempero founder Dominic Sparkes

In our last column, my colleague Tony wrote about Cheil and other far eastern agencies and groups buying up European and North American shops, potentially shaking up the status quo in the process.

It was a timely piece, because the trend continued when the biggest of all far eastern groups, the Dentsu Aegis Network, bought UK social media agency Tempero.

Details of how much Dentsu paid have not been revealed, but Tempero is a substantial business with around 160 employees in London and elsewhere.

Founded in 2003 by Dominic Sparkes as a full-service media management agency, it has over the past 11 years carved out a distinctive niche for itself as a multilingual social media specialist. Sparkes will remain in charge, reporting to ICUC (that’s the rather inelegant name for Dentsu’s media operations) CEO Keith Bilous and Dentsu Aegis UK CEO Tracey de Groose. Jasmine McGarr, Tempero’s chief operating officer, who also owns a stake, will remain in her role.

It’s a pretty decent deal for Aegis, given that the founding talent is staying put, most likely for some time. But even better is the kind of agency Tempero is: an in-at-the-start social media agency made up of experienced veterans, not just a rebadged “old media” agency. Tempero also works in some 20 different languages.

This adds up to a very compelling offer for potential clients. With a few honourable exceptions – Samsung Mobile, Disney, Nike and Coca-Cola chief among them – most non-digital brands don’t really 'get' social media, and it’s fair to say they require a bit of handholding; they are aware of the potential power of social media, but they don’t know how to tap into it.

With this new acquisition, global brands have a way in, and Dentsu Aegis has the kind of social media offer to help them.

It’s another example of Dentsu’s rather slow, careful, but canny, acquisition strategy, which, interestingly has almost exclusively focused on specialist digital shops – its most recent buy, just last month, was the specialist mobile agency Fetch. The London-based agency, which was bought for £30m, generates around £65m in turnover and has around 100 experts delivering mobile strategy, media, creative and analytics services to clients like eBay in over 90 countries.

Many observers (including no less a personage than Sir Martin Sorrell) have speculated that Dentsu Aegis Network might merge with, or buy out, IPG, the smallest of the 'big four' advertising groups. Analysts say that Dentsu is 'underweight' in some emerging markets such as India, Brazil, and the Philippines as well as in some technological areas like mobile (although this last has been addressed, to a degree, by the Fetch deal).

Speaking at the annual Morgan Stanley Technology, Media and Telecoms Conference in Barcelona last month, Claudio Aspesi, analyst at Bernstein Research said: "Scale matters in the long term to get access to lower prices for media buying and more attention from tech companies. Dentsu will be the likely buyer [of IPG]: a combination of IPG and Dentsu would be big enough to be a real fourth-place challenger."

I can see why he might say this. But while scale (or more specifically, the extended reach and reduced costs consolidation sometimes brings) is undoubtedly demanded by today’s global brands, size isn’t everything.

Since the fallout from the failed Publicis-Omnicom merger, organic growth and smaller strategic acquisitions, rather than mega-mergers, seem to be what people like Sir Martin are interested in. Also, given what we know about Dentsu Aegis and the kinds of businesses it likes to acquire, there seems little within IPG, as it is currently structured, to tempt it (there is a school of thought that says that IPG is worth more split up than it is as a group, which is why it might be of more interest to a private equity house than to another agency – although someone like Havas’ chief Vincent Bolloré, who has a corporate raider’s instincts, might be a candidate).

Indeed, the Japanese giant has plenty of irons in the fire – one of its agencies, Carat, last month won a four-year contract to handle the UK government’s media buying task (one of the biggest accounts in all British media) and has strengthened its Chinese management team.

And it refuted rumours that it was interested in big acquisitions. "Acquisitions are not a strategy in and of themselves. They need to back up our goal and complement where we are already present," Tim Andree, executive chairman of Dentsu Aegis Network, told the same Morgan Stanley conference.

I think Andree has a point. This is because size in and of itself is no guarantee of anything; and because media agencies increasingly have to demonstrate to clients that they’re worth the money they charge. After all, what’s the point of a media agency when you can approach Facebook directly, or get one of the automated ad networks to place ads for you?

The only point is that media agencies must add value to the chain; this might be negotiating better discounts, or by offering insights and consultancy. Or by offering nervous clients expertise in highly specialised, emerging technologies and channels – and this, with its two most recent buys, seems to be what Dentsu Aegis Network seems to be doing.

Andrew Moss is a partner at Green Square, corporate finance advisors to the media and marketing sector

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