The past year has seen some mega acquisitions across Asia-Pacific. Japan’s Dentsu is busy absorbing the London-based Aegis Group, which it bought in a US$5 billion deal finalised last March. We’re now months away from the Publicis-Omnicom merger, announced last July, which will generate the largest advertising and communications company in the world by revenue. WPP agencies JWT and XM recently snapped up a string of creative and digital agencies, including Hungama Digital, Designercity and Thomas Idea Thailand.
Acquisitions have always been a key way to increase growth, and with Asian markets now some of the fastest growing globally, it’s no surprise holding companies are keener than ever to build and expand their presences in the region. For smaller agency founders, there will always be an impetus to sell up in order to cash out the value of their businesses, and, in many cases, tie their companies to strong networks that can facilitate further opportunities.
When the two motivations collide, the stage is set for a takeover but, as R3 principal Greg Paull puts it, merging agencies should only ever take place when the end result is likely to be more than the sum of its parts.
Ensuring an acquisition is successful is a complex game, and history is littered with those that went wrong. Big name flops in recent history include the WPP/STW takeover of legendary Australian agency The Campaign Palace, as well as Photon’s acquisition of Naked Communications. IPG has struggled to combine Lowe and Lintas, and Draft’s 2005 takeover of FCB was nothing but trouble from the start. So why do so many turn sour? And what are the predicators for success?
Darren Woolley, MD of marketing management consultants TrinityP3, says things begin to go wrong when initial evaluations focus on pragmatic, tangible factors at the expense of culture and people. In the majority of takeovers, analysis of the agency’s finances — its revenue, EBITD, client base and liabilities — is the priority. “The part they don’t spend enough time with is ensuring there is also cultural alignment, because advertising is, fundamentally, a people business,” says Woolley.
Melding corporate process with independent culture and personality is no easy feat, and if cultures don’t mesh, there is little hope.
Speaking about WPP’s purchase of the Campaign Palace, a former employee says the ‘one size fits all’ approach thrust upon it by STW (which is 18 per cent owned by WPP in Australia) quickly curbed the agency’s nimbleness.
“You become heavier on the process side and for some agencies it’s a good thing because it makes them capable of operating solidly and effecting a much more predictable income. For some it works really badly because it drowns them in processes that they are not accustomed to follow and they lose their agility,” he says.
For XM chief executive Paul Soon, who oversaw the agencies’ three most recent takeovers, culture is never to be trifled with. “XM does not set out to change cultures. In fact we celebrate and embrace the difference in cultures and the different ways we speak of digital,” he notes.
Another critical factor in determining whether an acquisition sinks or swims is ensuring the agency’s founders stay committed to the cause after the event, and empowering them to do so.
In the case of Naked, Enero (formerly Photon) made every effort to let the renegade brand stand alone to preserve its culture. The consensus is that it was the loss of its cultural drivers that let it slip.
“Once they did their earn-out, they walked away,” says Woolley. “Enero was left sitting there saying ‘What have we really got left here? We really did buy those people. We bought Mike Wilson, Adam Ferrier and John Wilkins and now they’ve walked away’.”
But it’s not just about locking founders into a three-to-five-year earn-out period. It’s also about empowering them to be decision makers in their new environment.
Isobar Asia-Pacific chief executive Jean Lin says this was a key part of Isobar’s successful takeover of her agency, wwwins. “Holding companies must empower the founders to achieve what they cannot achieve alone to make it meaningful — and this was exactly my experience.”
Her experience was clearly very different to that of Campaign Palace chief executive Jacques Burger, whose role — according to a former employee — was circumscribed so severely after the takeover that he became incapable of steering the ship away from the iceberg.
“[Burger] was an absolutely fantastic CEO. I couldn’t have imagined anyone more visionary and spot-on for the Campaign Palace,” says the former Palace employee. “But his decision-making was completely obliterated by the [STW] CFO, who disabled any decision he was capable of making.
“STW instigated stringent cost control to the point that they actually cut out a number of very valuable and valid opportunities for growth.”
The best acquisitions are generally those where duplication of skill sets is minimised. Avoiding geographic duplication is also considered wise, although swallowing competitors is often one of the motivations for takeovers.
Choosing agencies which can offer complementary skills offers obvious new benefits, and also means little or no rationalisation is needed post takeover.
When it comes to XM’s purchase of Hungama Digital, Designercity and Thomas Idea Thailand, all these acquisitions were about adding reciprocal capabilities. Dentsu’s purchase of Aegis also talks to this point. At the time of the takeover, Dentsu chief executive and senior vice-president, Tim Andree, lauded the networks’ complementary geographic and product portfolios, as well as strong, shared values.
But, says Soon, at the end of the day, the recipe for a successful acquisition is the same as it is for any partnership — you need high dosages of empathy, humility, sincerity and transparency.
Only then will one plus one equal three.