Management Consulting Firms Mean Business

By Matthew Schwartz

It wasn’t too long ago that you could tell all the players swirling around the creative services M&A field.

You had the “big six” holding companies—Dentsu, Havas, Omnicom Group, Interpublic Group of Companies, Publicis Groupe and WPP—plucking creative services properties as they saw fit.

Then you had the independent firms hunting for strategic acquisitions or bolt-on deals as well private equity firms eager to acquire properties so they could flip them in a few years at a much higher multiple.

Those dynamics still hold true.

However, in the last few years the management consulting companies have started to encroach on the space, carrying ample budgets and disrupting the competitive landscape.

The major consulting firms, including Accenture, Deloitte, IBM, KPMG and McKinsey & Co., invested more than $1.2 billion in agency acquisitions in 2017, a 134 percent jump from 2016, according to analysis from marketing consultancy R3.

What’s more, the consulting industry is picking up some of the M&A slack left by the holding groups. Traditional buyers spent $1.8 billion during 2017, a drop of 46 percent compared to 2016 levels, R3 said.

Other consulting giants like IBM, McKinsey & Company, and “Big Four” firm KPMG, are also getting into the act. However, the firms invested significantly less, spending a combined deal value of $59 million among them, according to R3.  

Madison Avenue is downplaying the trend, with WPP dismissing the  threat from the management consulting firms as “wildly overestimated,” according to consultancy.uk.

Buy what else is WPP going to say?  

The surge in M&A activity among the management consulting firms is more than likely to have a ripple effect on deals for creative services agencies, particular if the management consulting companies continue to up the ante.

“The management consulting firms realize that growth via acquisition makes sense strategically and financially, says Rick Gould, CPA, J.D., managing partner of Gould+Partners, which specializes in creative services firms management and M&A. “They have deep pockets to pay a premium for quality firms. Accenture, having almost $23 billion in total assets, has a huge war chest for acquisitions.”

Accenture Interactive created by a series of acquisitions, has morphed into one of the largest digital agencies. 

Hard not to think that the competing management consulting firms are considering building a similar model.

Such a model increases the odds—albeit slim—that an Accenture or a Deloitte would be interested in acquiring smaller or boutique firms.

But the fact that management companies are accelerating the overall rate of creative services deals might start to force the issue among PR firm owners who have been mulling an exit strategy.

“The PR landscape will change significantly, as we see nontraditional buyers acquiring traditional PR agencies,” Gould says.  “But I have cautioned CEOs of specific target firms who have been approached by buyers that the culture of the buyer is far more important than getting a premium on the sale. If the culture of the buyer is not a good fit for the seller the integration of the seller firm will be very challenging.”

He adds, “Integration planning should be done well before the deal has closed. The investment of this time could determine success or failure of the acquisition.”

The spending spree among the management consulting firms could also impact pricing and/or efforts among smaller firms to consolidate and, in turn, increase the combined agency’s appeal for larger buyers. 

“There are many boutique firms that are in the process of being sold and the trend will continue,” Gould says. “Growing by acquisition makes a lot sense for strategic buyers and offers the boutique seller firms additional financial and human capital, digital resources and global offices to serve global clients.”

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