Yesterday US professional services firm Cognizant entered the marketing sector with a bang, announcing two acquisitions in the space of three days in the shape of Zone in the UK and Netcentric in Germany.
There’s been much made of the threat of the new entrants such as management consultancies and IT services companies breaking into the marcoms space in recent years and a quick look at eConsultancy’s Top 100 Digital Agencies report shows it’s become a reality that we need to deal with.
Four of the top five spots are now occupied by firms with roots in the consultancy and IT space. Frankly, it’s about time to move that narrative along.
Cognizant’s recent announcements will set the cat among the pigeons though
What we’re seeing now is further growth and consolidation within the digital marketing sector by IT services/consultancies. The traditional marcoms groups continue to fight what might now be viewed as a rearguard action to shore up their offer through M&A.
In terms of volume, the number of strategic acquisitions by the new entrants (with the notable exception of Accenture) have been rather more sluggish than many commentators expected. This may come down to those with an accounting heritage, in particular, are still struggling to get to grips with how to make acquisitions within a partnership structure. However, despite their relative inactivity, these players’ share of annual fee income continues to grow year-on-year.
Cognizant’s recent announcements will set the cat among the pigeons though. Zone was one of the leading independent digital groups and this deal constitutes a major coup for its buyer. There’s little doubt this is an acquisition that will be viewed enviously by the other IT services businesses.
You might imagine it’s difficult for a huge multi-billion dollar organisation to keep a low profile but while all eyes have been on the likes of Accenture, Deloitte Digital and IBM iX, Cognizant has been quietly building its teams in the digital marketing space.
Zone and Netcentric complement each other very well. Together, they fill some conspicuous gaps in Cognizant’s capability offering, particularly in content strategy and creation. They also enable Cognizant to grow its footprint in two significant European markets.
It would be hard to argue against the fact that IT services/consultancies appear to be tightening their grip on marcoms, as services give way to software
The very fact a US-based firm has chosen Europe, and notably the UK, as a base for its overseas expansion may raise some eyebrows. However, given the typical lead-in time for M&A deals it’s highly likely the process would have begun after the EU referendum, which would suggest US businesses, at least, are not being put off by the prospect of Brexit.
As well as the geographies, let’s also consider the timing of these announcements. Coming so close together, it’s hard not to see this as a case of Cognizant putting down a marker to its closest competitors to indicate it too is very much in the game. Furthermore these two deals may spur further acquisitions by other new entrants to the space taking a lead from Cognizant, particularly in to Europe. The other question is whether we’ll now see networks other than WPP and Dentsu step up their own M&A strategies in a bid to remain competitive.
There has been some speculation that the holding companies themselves could be snapped up by one of the management consultancies. While the balance of power has changed, I’ll defer to the contention presented by my colleague as to why we’re unlikely to see this happen.
It would be hard to argue against the fact that IT services/consultancies appear to be tightening their grip on marcoms, as services give way to software. However, as we saw in the last set of quarterly M&A results, deals involving advertising/creative agencies rose sharply in Q3 (from five to 13).
Despite notable efforts on the part of some of the consultancies to enter the creative space, for example Accenture’s acquisition of Karmarma, the general consensus still seems to be that this is where businesses with an IT background fall down. As creative grows in significance in the wake of banner blindness and consumers’ active rejection of digital advertising, any eulogising over the fate of the marcoms groups does still seem premature.
Yes, the market is Darwinian, but there’s no doubt each of the players will evolve; the one certainty is no-one is going to give up a market with an annual value of more than a trillion dollars without a fight.
Keith Hunt is managing partner at Results International