Last year was the year of the shopping spree. Holding companies and independent outfits alike have been busy buying local agencies, with digital shops proving to be particularly in vogue.
But once the ink has dried on the deal, how is a newly-acquired agency folded into its parent company? Miles Young (pictured), Ogilvy’s regional chairman, says both partners must work at the relationship. “The signing of contracts is just a legal punctuation point,” he says.
But once the ink has dried on the deal, how is a newly-acquired agency folded into its parent company? Miles Young (pictured), Ogilvy’s regional chairman, says both partners must work at the relationship. “The signing of contracts is just a legal punctuation point,” he says.
At this juncture, the future success of the merged agency hangs in the balance. Without a solid post-acquisition strategy, a once-thriving agency can start to crumble. As Young warns: “If you build a company in a ham-fisted way and the management leaves, clients are likely to leave too.”
In extreme cases of an acquisition not working out, it can be reversed. Patrick Stahle, CEO of Aegis Media Asia-Pacific, recalls Percept in India, which Aegis bought in 2003. Part of it was sold back to the owners this year. “It wasn’t making any progress because of cultural differences in both management and client terms,” he explains.
Yet Stahle shares some Aegis success stories too, including Agency W, a Korean digital outfit. Aegis is particularly proud of Agency W, because Korea is a difficult market to penetrate. English-speaking territories, such as Australia and New Zealand - where Aegis has just bought the promotional marketing firm Apollo - can offer the cultural advantage of a shared mother tongue, which facilitates business deals.
Richard Pinder, Publicis Worldwide’s chief operating officer, believes that acquisitions are either about empire-building or formalising a cultural understanding between two businesses.
He claims that Publicis, with its ‘Vive La Difference’ tagline, favours the second approach. “We don’t need more dots on the map; we need new angles from which to grow our business. That’s not about trying to change an agency into something it isn’t,” he notes.
A certain modus operandi, however, is often imposed on an agency. Andrew Kefford, president international and regional director Asia-Pacific at Results International, remarks: “A buyer can take a very successful locally-managed company, which has grown to fit the local environment, and put in Sarbanes-Oxley rules, head office directions, Western-style management and accounting.
“In a short time, that can turn a business from profitable to non-profitable.”
Pinder says that an acquired agency needs to be aware that, once it joins part of a group, it will lose rights such as the liberty to hire at will. Other behaviour also needs to conform. If the managing director wants a new company car, for instance, there is a procedure to follow. He concedes: “That can be a shock for people who run private companies, but we usually prepare them beforehand.”
Pre-acquisition preparation is vital. Edelman’s Asia-Pacific president, Alan VanderMolen, says that his company spends up to nine months researching agencies, while a further 18 months is devoted to relationship-building and due diligence.
Independents like Edelman use the fact that they aren’t unwieldy holding companies as a selling point, claiming that their independence affords greater autonomy to acquired agencies.
And size isn’t everything when it comes to acquisitions; the cultural fit is paramount. If this isn’t right, the marriage won’t flourish. VanderMolen remembers working at Y&R-owned Burson-Marsteller when WPP bought Y&R. “All the senior talent left and I don’t think the Y&R brand ever recovered,” he reflects.
