Analysts: Industry Gets Digital Spur From WPP's AKQA Buy

Could WPP’s acquisition of AKQA for an estimated $540 million spark another round of consolidation in the digital agency world as ad holding companies and the shops they operate try to bolster their digital capabilities? Analysts believe it is a strong possibility.

Pivotal Research Senior Analyst Brian Wieser said so in a note to clients today after WPP confirmed the proposed acquisition, which is pending regulatory approval. Forrester Principal Analyst Jim Nail agreed that competing holding companies are likely to react with acquisitions of their own.

Wieser cited Sapient and LBi International as two digital agency players that could potentially go into play. Neither company would comment by press time.

Nail questioned the feasibility of a Sapient acquisition. As a public company with a $1.5 billion market capitalization, he said: “It’s not the kind of deal you can do over Cosmopolitans at Cannes.” That said, Nail added: “LBi and Agencies of Change are both interesting possibilities -- kind of mini-networks in their own right that could stand alone and absorb other smaller assets, or small enough still to fill out one of the other networks.”



One way or another, “it’s likely Interpublic and Omnicom will react,” said Nail. The AKQA acquisition, he said, “definitely puts some distance between WPP and Omnicom, which had been pretty close, and Interpublic, which has a couple of strong assets, but doesn’t have the strategic focus that WPP and Publicis do.”

AKQA is a “great pickup for WPP,” said Nail. “Not only is it one of the biggest indies left, but one of the best at blending creative and technology skills in one organization -- a mix that doesn’t always live together easily."

Nail believes the acquisition "fills a hole for WPP," since the agency aspires to a category he calls “brand transformers, which are about more than communications and look to leverage digital capabilities to help clients enter new adjacent product and service areas.”

Wieser stated that the buy would be excellent for WPP, given its ongoing efforts to expand in the digital realm. The shop probably didn’t overpay for the asset, he noted. Given the industry’s focus on integrated media and marketing solutions, it’s easier for a big entity like WPP to provide such solutions than a stand-alone digital shop. He cited that factor as able to "partially restrain the cost of the acquisition."

“We view this news as incrementally positive for WPP,” Wieser wrote in Wednesday’s note to clients. On the flip side, the deal “partially holds back efforts of large competitors -- in particular Publicis, Aegis and Dentsu to add to scale.”

 Indeed, two years ago Dentsu and AKQA held acquisition talks that fell through.

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