The eclipse of the ‘big six’ in marketing services?

Daniel Domberger | Mar 2017

Marketing Services

Entrepreneurs and shareholders in the marketing services space should look beyond the ‘usual suspects’ to a more diverse acquirer audience, with more compelling strategic interest and greater synergy opportunities supporting an ability to justify higher valuations.

Most people think that the ‘big six’ international marketing services holding companies account for most M&A in the sector – an understandable view, given the way these groups have been built up through consistent dealmaking, are periodically in the news for headline-grabbing mega-deals, and Sir Martin Sorrell is regarded as an insightful commentator on M&A as well as the industry and the global economy

But these big beasts are less and less relevant to the mid-market. As they have become larger, and growth has become harder to come by, their focus has turned to faster-growth emerging markets, larger-ticket transactions, or endless restructuring of businesses they already own.

From 2011 to 2014, the big six accounted for around one deal in seven across the UK and USA. While overall volumes in these markets fluctuated, this proportion remained remarkably consistent.

But over the last couple of years, this proportion has declined to one in ten. In addition to the increased scale and distraction of the big six, there are three other drivers of this trend:

  • New entrants from other sectors. Accenture recently acquired Karmarama, and retail transformation specialist Javelin Group as evolving client demands have broken down the barriers between existing sectors. While the other consultancies haven’t followed Accenture as aggressively, some of the BPO players have, and the consumer loyalty group TCC recently acquired online specialist Summit.
  • Smaller, nimbler, and more aggressive groups, often backed by private equity investors, have become more important players. These groups have narrower focus than the holding companies, and mid-market acquisitions are more meaningful for them – allowing them to identify and exploit greater revenue synergies, and hence to share that value with selling shareholders. Recent examples include the acquisition of Comet by Merkle (before Merkle itself was acquired by Dentsu Aegis). The volume of private equity transactions in the sector has also increased, having fallen dramatically post-2008.
  • New mini-holding companies, such as Be Heard, seeking to build a new, more-focused modern variant of the traditional multi-agency holding company and which has made four acquisitions in quick succession using listed paper as partial currency.

This has also allowed valuations and deal structures to evolve, as companies move away from the traditional agency earn-out model and bring valuation approaches from different sectors to bear.

What does this mean for entrepreneurs and shareholders in the marketing services space? Look beyond the ‘usual suspects’ to a more diverse acquirer audience, with more compelling strategic interest and greater synergy opportunities supporting an ability to justify higher valuations.

The ‘big six’ and their market capitalisations (at 3rd March 2017) are:

  • Dentsu, £10.1bn;
  • Havas, £3.0bn;
  • Interpublic, £7.9bn;
  • Omnicom, £16,1bn;
  • Publicis, £12.2bn; and
  • WPP, £24.3bn.
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