NEWS: Report tells agencies to be wary of mergers

A surge of merger and acquisition activity in the marketing services sector was predicted for the coming year in an extensive report published this week.

A surge of merger and acquisition activity in the marketing services

sector was predicted for the coming year in an extensive report

published this week.



But agencies were warned against rushing into selling in the hope of

cashing in on the improving economic climate. With would-be sellers

still outnumbering potential buyers, only the most desirable targets

will attract high prices, the report says.



Published by WKS Results, a joint venture between the accountancy firm,

Willott Kingston Smith, and the management consultant, Results Business

Consultancy, the report is based on replies to 800 questionnaires sent

to heads of agencies, PR companies and other marketing services

operations during October.



It reveals that 89 per cent of company chiefs predict more mergers and

acquisitions in the coming year. But the report indicates that agencies

are keener to sell than buy.



Bob Willott, a director of WKS Results, said: ‘Nothing indicates the

current level of interest in mergers and acquisitions more clearly than

the fact that 74 per cent of respondents had been involved in activity

of some sort and that 9 per cent had completed an acquisition.’



The report suggests much of the activity is being fuelled by uncertainty

within middle-ranking agencies, which have failed to emulate the success

of original ‘new wave’ shops such as Abbott Mead Vickers BBDO and BMP

DDB.



‘Some of these agencies will be looking for a new home to boost volume

or to provide for the eventual retirement of the more senior people,’

the report says.



Most vulnerable will be conventional agencies servicing business-to-

business or financial clients, which are facing intensified competition

from direct marketing rivals broadening their offerings, the report

predicts, noting: ‘Agencies that are merely treading water will not

attract premium prices.’



The most likely buyers will be international networks and the strongest

UK publicly quoted agencies, which are looking for targets that will

plug a strategic gap and enhance long-term earning.



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