Despite the business uncertainty caused by the coronavirus crisis, 2020 has still been a more eventful year for marketing M&A activity than may have been expected. Matt Lacey, managing director at corporate advisory Waypoint Partners, reviews the year in deals.
Contrary to what some might think, we didn’t see a complete halt in M&A activity in the marcoms sector in 2020. Q2 was understandably quiet in our industry – as it was for the entire global economy – but we’ve seen an acceleration of activity from early Q3. This has especially been the case in the UK as entrepreneurs seek to finalise transactions ahead of the new tax year. Despite the disrupted market, many of the acquisition trends gathering pace in 2018 and 2019 continued to accelerate through 2020.
Continuing shifts in the nature of the top buyers
In 2018, the established global networks accounted for 40% of all transactions (by volume of deals) but that halved over 2019 and 2020. This was partially down to focus as they instead put emphasis on restructuring internally to futureproof operations. However, with an increasingly disruptive and creative acquirer landscape, it’s fair to say it’s more difficult than ever for networks to compete. WPP just topped Dentsu to return to pole position amongst the networks, although Merkle was the most acquisitive network brand.
We saw Dentsu complete its purchase of the remaining 34% of Merkle in April, ahead of the original 2021 buyout date. Since being bought by Dentsu, originally a 66% stake in August 2016, Merkle has maintained its own growth agenda and acquirer brand. However, as a major restructuring programme moves it closer to the integrated “One Dentsu” approach, it will be interesting to see how Merkle maintains its appeal as a home for independent agency leaders – especially in light of the recently announced Dentsu International restructuring. A similar question can be asked of brands like WPP’s Wunderman Thompson.
What 2020 has shown us (aside from Zoom calls)
Since 2018, the top 10 buyers list so beloved of all M&A advisors has seen the networks lose their dominance to the consultancies (Accenture, Deloitte, LRW) and new-era agency groups. Each has its own take on how to challenge the traditional model, but all are very well-funded and in a hurry to gain market share.
There was notable activity from agency groups such as S4 Capital, Jellyfish, Carlyle-backed Dept and Waterland-backed Intracto. What we call the 'hybrid groups' also made their mark. These operate as specialist investors but aim to deliver group interoperability: Hakuhodo-owned Kyu, The Stagwell Group You and Mr. Jones have been the main market forces to date, and taken together represent just under 10% of the core deal flow.
In 2020 some of the most exciting deals have been made by these newer players. Here are their highlights:
S4 Capital is showing absolutely no signs of slowing down, having made six acquisitions this year, including Brightblue Consulting and Dare.Win. Announcing its first pre-tax profits in November, it’s certainly a group with momentum and remains stock market stardust. Its more recent deals have been bolt-ons for the existing core S4C businesses rather than new platforms; but with bold plans it may not be long before we see the next platform deal.
Stagwell. A slowdown in deal volumes this year is hardly surprising given its pending takeover of MDC. We can reasonably expect that it is building the pipeline for a busy 2021 though.
Kyu, a Hakuhodo business, is a specialist curated network of bespoke capabilities. It invested in UK firm Public Digital in October this year and supported follow-on acquisitions for Kepler and Sid Lee with the acquisitions of Infectious Media and Denizen in early December. This approach of supporting companies in its collective to build their businesses is a major departure from the MO of the holding companies.
Carlyle Group-backed Dept continued building its strength in digital disciplines with the acquisition of west coast branding and digital design agency Basic. This marks the first US acquisition for Dept. With the firepower Carlyle brings to support international ambitions, we can expect it to be an active buyer in 2021.
BlueFocus, the Chinese marketing services firm, possibly best known in the UK for its subsidiary We are Social, shelved its US listing plans for the international spin-off Blue Impact (comprising Vision7, We Are Social, Fuse Project and Metta). Vision7’s announcement of the acquisition of All Inclusive Marketing in October, may be a sign there’s more M&A activity to come from Blue Impact in 2021.
What of the consultancies?
Accenture Interactive has significantly reduced its M&A volumes in the last two years – with acquisitions coming primarily from its consulting practice and focused on data, cloud and cyber security.
We shouldn’t be surprised by this. Accenture needs to take stock of the many acquisitions it has made – some of them very sizeable – and figure out if and how these come together.
However, with the shutting down of its media auditing practice there is a large gap left in the shape of a media specialist. If Accenture makes a move to fill this gap, and if we also factor in the acquisition cost of Creative Drive earlier in the summer, we might see it retain a top 10 position by deal value, if not volume. Sir Martin Sorrell has spoken very publicly about Accenture as S4C’s key competitor, and we wait to see if this pressures a move from Accenture.
Challenger consultancy Elixiir, which went to IPO in the summer, is another public company to watch. It acquired UK Coast Digital in October and looks set to make further inroads in marketing services, bringing new consultancy blood to the industry.
If none of us followed the news, with the exception of the Q2 hiatus, 2020 would feel like a normal but full-on year with 2021 shaping up for more of the same.
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