Daniel Domberger of Livingstone: can agencies like Dentsu buy their way into data?

Daniel Domberger (below) of media and technology M&A firm Livingstone questions if buying data-based businesses can help agencies compete with the likes of Adobe and Oracle.

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Digital has totally transformed the marketing mix, and the way that media and brand messaging are consumed. This has driven data-led players, and technology-based marketing groups such as Adobe and Oracle, to converge on the territory of the traditional marketing services agencies. The marketing agencies have had to evolve in response.

But evolution is slow. For many ambitious marketing businesses, organic growth isn’t enough. Acquisitions can be the answer – adding the capabilities and footprint of another business can propel a company into the next stage of its growth plan or a new strategic space.

Collaborating and combining capabilities

You can see this driver in Dentsu Aegis’s acquisition of Merkle earlier this month, and in Merkle’s own track record of acquisitive growth.

Merkle positions itself as an analytics-led digital marketing services business, but in reality it runs as two businesses. A third of its $450m revenues come from value-added data-enriched targeted agency services, with well over half of revenues coming from legacy database marketing. The agency services business is more strategically valuable, higher-margin, and faster growing, but very competitive and Merkle isn’t as well-positioned here as it is in its historic heartland.

And so Merkle turned to acquisitions, making ten in the last five years. In a particular strategic move, it acquired Comet Global Consulting, a leading provider of marketing automation and decision solutions, with the aim of bolstering the technology behind its data-led marketing model and knitting the two parts of the business more closely together.

Time will tell

Dentsu itself has a busy acquisition policy (with ten other deals so far this year alone), driven by similar pressures in the market and a similar quest for acceleration. Earlier this month, it acquired Merkle to increase its digital own presence and insight-led consumer targeting.

Despite its track record of growth by acquisition, Merkle has struggled to drive genuine revenue synergies and cross-selling through the businesses it has bought. The same can be said of Dentsu (and the other global networks which have grown by acquisition, often including earn-outs which ring-fence the target and impede integration).

At this stage, it is unclear the extent to which Dentsu will seek to integrate Merkle or use it as a platform for ongoing consolidation in the sector. With Merkle’s weak track record of cross-selling between its business units, Dentsu will need to push hard to extract the value from this acquisition and truly leverage its global reach.

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