Earlier this year, Waypoint Partners’ client, digital transformation agency Draw, was acquired by international management consultancy Oliver Wyman. This deal represents the culmination of seven years’ value-building work between Draw and Waypoint, but also underlines the trend of management consultancies acquiring digital service agencies.
A few years ago, the idea of a creative business selling to a management consultancy might have raised eyebrows. Today, consultancies are becoming aspirational homes for the industry’s top creative talent.
So, what has brought management consultants to the negotiation table? Why are marketing agencies engaging with their offers, over those of Publicis, Omnicom or WPP? What does this mean for the future of these marketing groups? Will we see further structural change to the large holding groups of the marketing services world? Will Martin Sorrell come out fighting and make a play to purchase management consultancies of his own?
These are questions we’re asking at Waypoint as we work to stay at the forefront of industry developments in order to scope out the most favourable opportunities for sale.
What’s in it for the agency?
The overriding reason independent agencies seek to be bought by management consultants is that consultancies offer something different to traditional suitors.
Three key differentiators:
- Management consultants offer a route into senior stakeholders within a client organisation. This enables agencies to offer strategic, transformational services, whilst leveraging the consultant’s brand to charge appropriately.
- Consultancies often focus on innovation, so agencies can benefit from this. It gives the agency access to cutting-edge projects, which helps attract and retain top tier talent – a key challenge for agencies and a common growth inhibitor.
- Acquired agencies can help shape a consultancy’s offering, impacting how they combine strategic advice with creative execution. For pioneering or disruptive agencies, this will often be more attractive than going into an established marketing services group, which is far less likely to change how it operates.
What do the management consultancies stand to gain?
Arguably, for consultants, the greatest value in acquiring agencies is access to a deeper understanding of their existing clients’ customer/consumer base. It strengthens data driven strategy and provides an opportunity to integrate this with intelligent behavioural insight, which enhances the quality of the strategic advice they offer.
Creative agencies’ expert design thinking is critical to developing powerful tools and products for clients. Key to this is having an agency closely aligned in its strategic thinking and understanding of what the management consultancy is trying to achieve. Draw and Oliver Wyman have already worked closely for many years, and this acquisition will accelerate the capabilities of both businesses.
What does this mean for the market?
Martin Sorrell has declared in response to these acquisitions: You can’t buy culture! Part of me agrees. Undoubtedly, the winners in the management consultant vs marketing services contest, will be those who effectively bridge the cultural gap between traditional business and the creative world. This consideration was front of mind during sale negotiations for Draw. Oliver Wyman emerged as the front runner because of their similarly innovative culture to Draw.
Lack of integration and cooperation is also an issue. With the worlds of traditional media, advertising, digital marketing and tech attempting to work alongside one another, cultural differences can be of concern. A recent PwC paper highlighted flaws in the networked model and called for transformation to survive significant changes in the marketing industry.
Will agency networks be as open to changing their approach as management consultants seem? Will any changes be far-reaching enough for aspirational independent agency leaders entertaining a future alongside the consultants?
Of course, it’s not all doom and gloom for the marketing services business. While networks face competitive pressure on multiple fronts, they have unprecedented access to the world’s largest brands. We are also seeing these large networks increasingly move towards pan-global contract models with top FMCG companies, making it harder for independent agencies to win work.
So, what of the future?
Well, this is where it gets really interesting!
Will we see Sorrell, Sadoun and Wren flip the direction of current acquisitions in the market and move towards purchasing management consultancies themselves? We may be seeing first stage examples of this, with Kyu (owned by Hakuhodo DY Holdings) focusing its acquisition efforts on disruptive/consultative-style businesses.
Also, consultancies have focused on digital service agencies to date, but many predict they will turn their attention towards media buying agencies. A disruptive agency that can drive down the cost of media buying, while improving audience engagement and consumer acquisition/retention rates, is offering highly transformational services, and a management consultancy is its perfect home.
Change and lack of precedence make operating in my field incredibly interesting. Understanding the market and its future development is key to Waypoint Partners’ ability to drive growth and value in our clients’ businesses. Today, management consultancies are firmly at the negotiation table alongside the major marketing networks. The question is, who will be there five years from now?