Change is gonna come in the Irish advertising world
The level of M&A activity in the advertising industry in recent years has been negligible - but this could all change over the next 12 months
Published 15/05/2016 | 02:30
The announcement that the Dublin-based digital agency In the Company of Huskies had acquired fellow agency Brando during the week didn't come as a surprise to many within the Irish advertising industry.
Huskies is headed up by Jonathan Forrest, one of the early pioneers and visionaries of the digital advertising industry, and has been responsible for plenty of award-winning creative work down through the years.
Brando, which was set up in 2006 by Darren McGrath and Brendan O'Flaherty, both of whom were also converts to the digital world, has also won its fair share of accolades and admiration within the industry and was one of the first agencies to open up an overseas office in Prague.
In recent years the agency morphed into a full-service agency, but with digital at its heart.
The deal will create an agency with a turnover of €8m and 55 staff and it may be the first of several such M&A transactions we could see over the coming year as the industry braces itself for further change and disruption.
The acquisition may not go down in advertising history as a particularly big transaction - but it does send out signals to the wider industry that change is definitely going to come. Precisely 'when' is an entirely different matter.
Unlike other developed advertising markets, the level of M&A activity in Ireland in recent years has been negligible. Some of this has to do with the ownership structure of the industry and the relatively small size of the market.
While all the major global agency networks are represented in Ireland, and were active on the M&A front in the 1980s and 1990s, it would appear that their appetite for further acquisitions has been whetted a long time ago.
With the exception of a few acquisitions by the likes of Dentsu Aegis Network, Havas and Core Media, the M&A market has been conspicuously quiet in recent years.
A lot of this is due to the fact that the global networks already have a presence in the Irish market and a bolt-on acquisition does not materially alter their bottom line. So why bother?
Instead, their focus has been on developing markets globally, particularly in Asia and South America. As a satellite of London, Dublin has rarely registered on the international radar.
Some of the global networks have opted to take minority shareholdings in some agencies here, letting the local management and the majority shareholders do all the running, in return for an annual franchise fee and a split of any dividend that may arise.
But the most likely reason for their absence from the M&A market is that most of the global networks have a very clear profile of the type and size of agency they want to acquire and these have to adhere to certain investment ratios that are designed to deliver shareholder value. With the exception of one or two of the bigger independent players, the vast majority of independent Irish agencies simply don't fit the bill.
On the one hand, this is worrying for many of the smaller Irish agency bosses hoping to cash in their chips before they head off into retirement. While some of them may already have succession plans, others may not.
Those agencies that can't see beyond the end of the calendar year should at least be considering all their options - and this includes merging with other agencies that happen to be in the same boat.
Mergers, of course, can be notoriously difficult to get right. Inflated expectations, culture clashes and too many egos in the one room can often derail the best of merger plans. Hands up who remembers the ill-fated nuptials between Publicis Groupe and Omnicom a few years ago?
On the other hand, M&A activity could be forced upon them by the most unlikely of sources - their clients, some of whom have started to bang the drum.
It is no secret that many big global brands are becoming increasingly concerned, and indeed frustrated, over the number of agencies they have to deal with, their lack of integration and their continued adherence to a model - built around silos - that appears to be broken.
It is not unusual for some international brands in Ireland, for example, to have as many as eight agencies, all representing different disciplines, reporting to the marketing department. This is unsustainable and not in the best interest of the client - and it does not necessarily generate the best ideas or the best work. Anyone who tells you otherwise is whistling past the graveyard.
Even the term 'agency' would appear to be outmoded, with some international clients preferring the term 'partner'.
And that partner does not necessarily have to be an agency either. It could be one of the big global tech players or one of the international consultancy firms. Or indeed a mobile phone operator or an online retailer.
In other words, it's all to play for - and in the near future, absolutely everything is likely to be up for grabs.
Sunday Indo Business