While M&A in the marketing services industry was generally flat last year, consultants doubled down on their bets in the sector while the agency holding companies were significantly less active compared to 2016, according to an analysis by independent consulting firm R3.
Based on the firm’s analysis, consultants such as Accenture, Deloitte, IBM, KPMG and McKinsey invested $1.2 billion in agency acquisitions in 2017, a 134% increase over 2016. By contrast, investments by agency holding groups including WPP, Dentsu, Omnicom, Interpublic and Publicis declined by 46% to $1.8 billion.
“It’s clear that the consulting firms have seen the opportunities and are more willing than ever to open their wallets for them” said Greg Paull, Principal of R3.“Accenture alone invested more in 2017 on acquiring agency assets than WPP, Omnicom, Interpublic and Dentsu combined – most of who had depressed stock value through the year,” he added.
R3 assessed 401 deals across the year in the marketing communications space, just a slight increase on 2016’s 398 deals. Overall, $13.5 billion of M&A funds were invested in these deals, a 3% decrease versus 2016.
By region, Europe saw the largest increase --34% with $3.7 billion in deals despite the decrease in the overall number. “All of the top ten Europe deals involved at least $100m in transaction value each as WPP, Dentsu and some non-traditional acquirers took advantage of slower business conditions to make some significant moves,” said Paull.
The U.S. remained the leader vis-à-vis the other regions, on both the volume ($6.6 billion) and number of deals (202) through the year, including Williams Lea Tag, Turn and Rocketfuel. “With the growth of the duopoly [Google and Facebook], the issue for ad-tech firms is really fight or flight – so it won’t be surprising to see a flurry of more M&A in this space in 2018” Paull said.
Both Asia (-34%) and Latin America (-45%) declined in terms of deal size through 2017, led mostly by China (-77%) where there were just 16 deals completed. China has become a “wait and see” situation for a lot of the global holding companies given that most of the sales transacted this year involve local firms, noted Paull. “There’s no shortage of interest though and we would expect this to pick up through 2018,” he added.
It was another strong year for digital and digital service acquisitions, with these two categories representing $6 billion combined in value over 2017. The creative number was bolstered by Bain Capital’s December acquisition of ADK Japan.