The year 2000 was extremely active for acquisitions in the
marketing communications sector. Saatchi & Saatchi, Young & Rubicam,
Snyder Communications and Lighthouse, the US-based collection of
integrated businesses, all changed ownership. Dentsu acquired 20 per
cent of B-Com3, the group company of Leo Burnett and D'Arcy, and there
were hundreds of smaller businesses acquired around the world, as the
industry continued to consolidate.
The three largest groups - WPP, Omnicom and Interpublic - have growing
market shares, accounting for some 40 per cent of the top 100 ad
organisations' gross income (source: Advertising Age). Each has revenues
of between dollars 5 billion and dollars 6 billion, and are the main
drivers of the continued search for revenue-enhancing mergers and
One could be forgiven for thinking that this 'spree' must end, with the
indications of a softening US economy, consequent reductions in profits
to earnings multiples and the knock-on effect of the dotcom crash.
However, there are a number of factors that continue to drive the search
for quality businesses in the sector, not least the constant demands on
multinational groups for growth from investors.
Based on revenues of around dollars 6 billion, WPP is expected to
deliver the equivalent of an additional 12 per cent growth this year
(after 'promising' only 7 per cent), some dollars 700 million. Other
major players are expected to deliver along similar lines.
Clients have put these businesses under margin pressure for some
How much more can be squeezed by cutting costs, even with the rising
proportion of revenues coming from higher margin, non-advertising
New business and growth from existing clients, coupled with revenues
generated for the full year from last year's acquisitions, will make a
major contribution. It still seems likely that most of the top players
will have to find anything from dollars 200 million to dollars 750
million in new revenue in other ways. This means more acquisitions.
Instinctively, the US is the top priority because that is where
businesses big enough to deliver against such large numbers
The US market is quickly running out of quality, large-scale businesses
to buy in the marketing communications sector. Attention turned first to
the UK and Europe, and then to Asia Pacific, particularly China, South
Korea and Japan, where there are creative approaches to acquisition.
Geographic expansion, therefore, and aggressive moves into integrated
sectors such as direct and database marketing, public relations, event
marketing, sales promotion and interactive businesses are also driving
the search for good properties.
The prognosis for this year is that acquisitions will continue, with
more, bigger players looking to acquire the dwindling number of quality
Some markets are in danger of being 'shopped out'. There are fewer
independents left in London and it's virtually impossible to find such
businesses in France and other parts of Europe.
The message is that buyers must take a more creative approach to
Instead of just cheque books, they are wise to bring clear strategies
for integrating these businesses into their network, a decent long-term
view of how the business can benefit from its partnership with the buyer
and a sense of humility.
Gone are the days of sellers being mesmerised by the numbers offered for
their business. The best independent companies know their value and
often their willingness to deal is driven by prospects for the
management team and the business as a whole.
There are, of course, major properties, such as Cordiant and Grey, which
are the subject of constant rumours. What's certain is that by this time
next year, there'll be fewer advertising-led communications groups than
there are today. 2001, then, promises to be as active (and interesting)
as last year.
WHO BOUGHT WHO IN 2000
NOTES: WPP's acquisition of Young & Rubicam confirmed the group as the
world's largest marketing communications company. Paying just under
pounds 3.3 billion in shares, the deal represented a multiple of three
times revenues for the business.Given the strategic nature of the
acquisition and the diversified nature of Y&R's integrated operations,
including Impiric and Burston Marstellar, the market appears to have
accepted this multiple, which in ordinary circumstances would be
Cordiant continues in expansion mode despite continued talk of the group
being 'in play'. The acquisition of Healthworld, a US healthcare agency,
follows several major acquisitions by other multinational groups in this
lucrative sector of the market, particularly in the US, where
advertising and promotion of non-prescription and prescription drugs has
become the fastest growing area in marketing communications.
The purchase of Lighthouse for some pounds 311 million signals
Cordiant's continued move into the integrated sector.
Lighthouse is a collection of integrated businesses built up through
acquisition, mainly centred in the US, by an investment group. The price
was considered very high, given the diverse, unrelated nature of the
businesses within Lighthouse and its lack of geographic coverage.
Deutsch Inc was America's largest remaining independent agency when it
was acquired by IPG for about pounds 475 million. Deutsch was also the
fastest growing agency in the US at the time of its acquisition, with a
growth rate of 55 per cent in 1999.
Frankel &Company is a specialist promotions/brand marketing business
with offices in Chicago, Detroit, southern California and San Francisco.
Acquired by Publicis last year for about pounds 92 million, it
represents the French groups' continued expansion into the US, where
they have amassed a number of major businesses in recent years. The
largest of these is Snyder Communications, which brought Arnold
Worldwide to the Havas group and which has become the growth engine for
its old Campus network.
Arnold is based in Boston and is rapidly expanding into a global second
agency network of the Havas Group.
Havas also acquired Abernathy McGregor,a corporate marketing
communications operation, based in New York, which handles publicity for
IPOs and other corporate development issues such as investor relations.
Among Abernathy's major clients are Barclays, DoubleClick and Vodafone
Month Buyer Seller Price
January Publicis Frankel & Company 92
February Publicis Fallon McElligott n/a
March Cordiant Healthworld 162
September Publicis Saatchi & Saatchi 1,179
September Cordiant Lighthouse 311
October Havas Snyder Communications 1,462
October WPP Young & Rubicam 3,279
November IPG Deutsch 475
November Havas Abernathy McGregor 50