The consulting industry’s collective spend on marketing and advertising powered past the $1 billion mark in 2017, according to new data. Even with data from a selective sample without some of the industry’s biggest names, consulting firms spent a significant sum on acquisitions in the sector, beefed up significantly by Accenture’s huge war chest in particular.
Interest from the consulting industry has kept M&A in the marketing services industry stable over the past 12 months. The market saw a significant drop in investment from traditional players, as top agency holding groups including WPP, Dentsu, Omnicom, Interpublic and Publicis spent $1.8 billion over the course of the year, a reduction of 46% on 2016 levels.
According to analysis from marketing consultancy R3, however, M&A activity in the sector was bolstered by the plans of major consulting firms, including Accenture, Deloitte, IBM, KPMG and McKinsey & Company, who invested more than collective $1.2 billion in agency acquisitions in 2017, a 134% increase on 2016.
Multidisciplinary consultancies continue to seek areas in which they can grow their operations, and throughout 2017, this saw aggressive expansion campaigns on the part of a number of firms. Such firms boast huge headcounts, in some cases possessing a staff twice the size of top firms in the advertising world, according to a number of analyses. This theoretically gives consultancies an upper hand in winning key business away from long-term market incumbents, as they have the potential of completing tasks across a variety of skill-sets and sectors in-house, at a rapid pace, to provide a quick holistic service.
Accenture are perhaps the most notorious example of a large consultancy utilising this ethos. The firm announced a massive global acquisition plan in 2017, worth $1.8 billion, in order to try and get the jump on competitors across a number of sectors Accenture planned to enter. Ultimately, the analysis concludes that the lion’s share of this war chest was spent in the advertising and design space, as Accenture poured around $1.03 billion into its Accenture Interactive arm.
Ultimately, this tactic payed dividends for the firm. By offering to leverage the firm’s huge headcount of 400,000 – now supplemented with talent from numerous mid-sized agencies including award winning firm Rothco – in the provision of a quick and effective end-to-end service, the consultancy was capable of winning high profile work from the likes of publishers Pearson, and the Vatican.
Other non-traditional acquirers also made designs on a sector which is seemingly perceived by a growing number of firms as ‘up for grabs’. While the available overview of the industry is far from comprehensive, not including Big Four firms EY or PwC, five other consulting firms made large investments in advertising agencies. Although significantly less than Accenture’s figure, Big Four firm Deloitte sank $144 million into acquisitions in the sector. This saw groups such as Swedish creative agency Acne incorporated into Deloitte Digital, which already boasts multiple global and UK offices, and was recently named a Netsuite Partner of the year, having become one of the world's largest implementation partners for NetSuite solutions, providing a holistic service which includes business strategy, customer engagement, technology implementation, and operational readiness.
Other consulting industry members IBM, McKinsey & Company, and fellow Big Four firm KPMG, also made inroads into the sector with purchases of their own. However, the firms invested significantly less, spreading a much lower combined deal value of $59 million between them.
Outside the consulting world, the professional services world saw IT services specialists Modus Global Link solutions spend $476 million, while fellow IT sector firm Cognizant spent $252 million on M&As involving digital agencies. This included deals for Netcentric and Zone. This helped the firm win contracts from, among others, the English Football Association.
Other interest included players from the publishing, Private Equity and technology sectors. Snap Inc, a US camera company, invested $146 million into growing its advertising solutions wing, while entertainment conglomerate RTL spent a similar $145 million.
Design giants strike back
While this trend seemed to herald a new era of competition in the advertising space, however, major market incumbents were keen to down-play its importance. WPP, particularly, issued a parting shot during an end of year report, concluding that the advertising footprint of consultancies had been “wildly overestimated” by the press.
WPP's net sales fell 1.1% in the third quarter, better than the previous three months, but there was no sign of improvement as it expects annual sales will be "broadly flat" and reduced its profit margin target. Among the companies that are part of WPP are Grey Group, Burson-Marsteller, Hill & Knowlton, Millward Brown, Ogilvy & Mather, Young & Rubicam, Landor Associates, and JWT. The company, which is listed on the London Stock Exchange, is one of the 'Big Four' advertising agency companies, alongside Publicis, IPG and Omnicom.
Interestingly, however, WPP is throwing its considerable weight behind a new campaign of acquisitions in the consulting space. In part this could be to combat consulting firms within the advertising space, by being able to display holistic capacities of its own. However, the investment in the recently united Kantar Consulting – which obtained London consultancy Mash earlier in January – could also be a sign of things to come more generally, with advertising firms looking to boost their flat-lining growth with an adventure into a new space; that of the consulting industry.