Jim Houghton: will 2014 be the year when the marcoms M&A torch is passed to China?

Unknown-52014 is shaping up into an intriguing year for mergers and acquisitions in the marcoms sector. And I suppose it would have to be in order to top the biggest story of last year.

It’s ironic that in an industry so notorious for perpetual gossip, the creation of POG (the proposed Omnicom/Publicis Groupe merger) never crossed anyone’s lips until the story broke. It clearly wasn’t just me that was taken completely by surprise, as Havas’s David Jones spoke of pigs flying outside his office window.

I was on the way to the airport with my family for our summer holiday when I got the call from the office saying that the Wall Street Journal wanted our reaction to the story that was brewing. My reaction was – in writing – to offer to the team that I would douse my sombrero in chilli sauce if there was even a hint of truth about what quickly became known POG.

Luckily for me, they haven’t yet called that in!

Unknown-6It’s been silly season on the gossip front ever since, but who can blame anyone for that given the shock creation of POG? Interpublic obviously became the next ‘likely target’ and the rumour mill has been cranked up to an implausibly high level ever since. Of course, the changes at the top of Havas will switch everyone’s focus now – and gossip will probably oscillate between the two until we all get bored and the next big story comes along.

So what will that next big story be?

Human nature hasn’t changed because of the 2008 financial meltdown and there’s a large group of clever, innovative but frustrated entrepreneurs (another note of irony that they are precisely the kind of folks who, pre-Lehman Brothers, were coming up with the smart derivatives and financial engineering that helped get us all stuck in this recessionary rut in the first place) who just want to grab the bull by the horns and make something new, exciting and lucrative happen.

Part of their motivation, or perhaps justification, is simple supply chain consolidation: selling in more and broader professional services to their multinational corporate clients. Anecdotally, however, just as big a driver is the patently obvious fact that disruption to business models breeds opportunities for consultants.

So where’s the disruption? These days, it’s clearly digitisation of business and all things data. And we’ll see much more of this to follow in 2014, I would guess.

I’d also expect to see more buyers from previously quiet sectors coming into the market: hardware firms such as mobile handset manufacturers and new buyer groups looking to monetise their existing data resource (such as subscription-based gaming or gambling sites).

And just like the previous two or three years, 2013 was once again the year of mobile. Arguably, even if the dollars don’t quite support this claim, there would be a decent argument in terms of volumes and momentum shift that does. M&A activity is always a lagging indicator, as businesses take time to reach maturity and fathom out what they’ve really got on their hands in terms of the long term shareholder play. I’m pretty confident that the lag will close and that 2014 is likely to be the Year of Mobile yet again.

images-1But unquestionably one of the most noteworthy features of 2013 – and thus a big marker for how 2014 is looking – was the emergence of the little-known foreign buyer. I doubt that anyone at Huntsworth was surprised at China’s BlueFocus making a 20 per cent investment in the group after their close working collaboration over many years, although of course a few years back the deal might have been the other way around. But such is the growth engine of China that the march of its largest domestic player was always bound to take it international with a big respected name sooner rather than later.

Of course, not so many people would have seen BlueFocus’ next move coming – its 80 per cent acquisition of We Are Social. Hardly rocket science for those who know BlueFocus isn’t a PR group and who understand its drive for international digital growth. Nor for those who, like me, believe that socially-led marketing is here to stay and possibly even to lead communication strategy for the foreseeable future and don’t see it as simply another ‘channel’.

Will there be more from BlueFocus in 2014? I’d be surprised if there isn’t. And more from China generally? Quite likely. The ambition, scale and funding are all there. There are both exciting opportunities and challenges posted by cultural differences, and boring practical issues like foreign currency regulations and government approvals that we haven’t had to worry about in the West until now. However, we’ll all be getting more familiar with them over the coming years as East and West increasingly merge.

Finally, we can’t ignore Sir Martin. I’ve not totted up the numbers for 2013 but I would fully expect that WPP will again have been the most prolific acquirer of the year – if perhaps in a rather more understated way than, say, it was in 2012 with AKQA. But after a rather surprising year that included some pretty major activity, I would be staggered if WPP lets 2014 go by without grabbing back the headlines.

Jim Houghton is a partner at Results International

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