NEW YORK, January 3, 2017 — By Joe Mandese, MediaPost
First, let’s dispense with some elephants in the room of this year’s Media Agency Holding Company of the Year pick, Dentsu Aegis Network. While some might see it as a surprise because of some issues involving Japanese parent Dentsu — including the disclosure of billings improprieties and the resignation of CEO Tadashi Ishii following an employee’s suicide, ostensibly related to the agency’s working conditions — our rationale was based on how the network reorganized its media operations in the U.S., especially some key acquisitions that transform it around the most important factor in media today: It’s the data, stupid.
Two back-to-back deals — its $1 billion-plus acquisition of data-driven performance marketing agency Merkle in August, followed by its purchase of leading independent agency trading desk Accordant in September — as well, as the integration of “digital-first” flagship 360i with pure-play media services shop Vizeum, demonstrated a vision that the future of media planning and buying, and related marketing services, is not about the scale of buying media, but the scale of organizing, mining, analyzing and applying data to get more leverage in the marketplace.
At a time when other big agency holding companies are touting their scale and their “horizontality,” for Dentsu Aegis the future is about being smarter, not necessarily bigger.
“Clients are discovering that scale isn’t particularly useful anymore. It’s the data that counts. It’s what you do with it that counts. It’s not about volume anymore,” explains Rob Horler, CEO of Dentsu Aegis Network USA, who led the aggressive acquisitions strategy in 2016, as well as the integration of 360i with Vizeum to create an even more powerful, digital-led media network option.
To take an even more specific jab at an unnamed super behemoth media services competitor, Horler mocks its attempt to “build a universal ID across all their assets,” noting: “Well, that is what Merkle is. And they’ve been phenomenally successful at it, which is why it was the largest independent agency in the U.S. until we bought it.”
Dentsu Aegis’ $1 billion-plus acquisition of Merkle caught other agency holding companies by surprise, because most had been courting the independent for its tech stack, its data, and especially because of its deeply rooted relationships with some of the biggest and most important marketers in the world — and the fact that Merkle was already doing what most other agencies were trying to reinvent themselves around.
While not as big or as surprising, Dentsu Aegis’ acquisition of Accordant was equally as significant for similar reasons: because it brought a best-in-class team, technology and data-centric insights into its programmatic media-buying offering, Amnet, to make it an even more compelling offering.
If there is one knock in the strategy, it is the question of independence. Specifically, what happens to the value of two assets that were premised on their independency, once they are integrated into a holding company?
“You sacrifice some things when you sell a business,” Horler concedes, noting: “It’s a different proposition, not just for your clients, but for your people, as well and you’ve got to have something better to tell them as a result of the merger.”
For Merkle, it is the opportunity to expand more globally as a result of the Dentsu Aegis global network without being subsumed and for Accordant it is the ability to seamlessly integrate its team and technology with Dentsu Aegis’ Amnet, which is being run by Accordant’s leadership, including founders Art Muldoon and Matt Greitzer.
Horler acknowledges that there could be some shakeout — especially work that Merkle and Accordant do with organizations owned by other holding companies — but the upside is worth it, he says, because they will have more resources to work with.
“We don’t buy businesses that are successful and tell their management to stop doing what made them successful,” he explains, adding: “We are going to give them the white space to do what they want to do.”
Horler says the track record is good, noting that 84% of the founders of companies that Dentsu Aegis has acquired are still with their companies two years after they have earned out their buyout deals.
“They tend to stay, because they continue to be happy and motivated,” he explains.
That has clearly been the case at 360i, a perennial OMMA Agency of the Year for several years running — but the integration with Vizeum makes a strong homegrown proposition even more compelling.
It gives 360i a deeper bench in conventional media planning and buying, while giving Vizeum the scale to compete against bigger media shops in the U.S. The combination, says Horler, isn’t just a bigger “conflict” brand, but a true alternative to Dentsu Aegis media services flagship Carat.
As breathtaking as 2016 was for the network, Horler says it is not done and other acquisitions are likely on the horizon in the next 12 months. While they are not likely to be as big as Merkle, he says they will be just as strategic, because the media and marketing services playing field is changing too quickly for holding companies not to be continuously transforming themselves.
“My honest view is, unless you’ve got a very clear M&A strategy, I don’t understand long-term how agency holding cos. will stay relevant to clients, especially in at market as fast moving and dynamic as the U.S.,” Horler explains, adding: “Think about how fast the market has changed in just the last 18 months.”