Agency mergers and acquisitions and why they fail
With the announcement that Scott Whybin's name had been dropped from the shingle of the company he founded 20 years ago, Whybin TBWA, Wayne Wood talks about why so many agency mergers and acquisitions fail..
The mergers and acquisitions game in agency-land is strewn with failures, so many local agency brands in the past have disappeared along with their billings and revenue.
Multinationals take over local agencies with the mistaken belief their brand is more powerful than the one they are acquiring. The reason for mergers and acquisitions is:
1. the acquiring agency’s brand is failing, and,
2. they need new blood (talent) to reinvigorate a tired company.
They (the acquirer) also require local clients who are far more profitable than the multi-national clients, where some brain surgeon (usually in the USA) has negotiated an unsustainable income level for accounts outside the headquarter country (usually a finance director who has little understanding of business outside of their office/country, focusing on their office profitability, at the expense of all other offices, usually negotiating a smaller % return on the thousands of millions of dollars in the headquarter country).
So, the merger has occurred, what next?
Sign the senior partners in the acquired company up for three years, then proceed to change the agency brand to that of the acquirer (remember, this is the failed brand).
Then proceed to inflict the international procedures and fees on the newly-merged office with an objective of getting rid of the acquired agency’s name as soon as possible. Usually the ratio of international business vs local is around 80% local 20% international.
Charge the local business franchise-style fees for the use of the international names on the entire turnover of the merged business. (+ IT charges +++). This can impact negatively on the payout to the partners of the acquired agency, and does not encourage good relations.
Ignore the culture of the new agency and attempt to introduce the culture of the international brand. Personally, I have not seen this succeed anywhere in the world.
The dark clouds descend
In my experience and from what many acquired agencies have told me is:
“the stultifying humidity of the corporate wet blanket is thrown over the people within the taken-over entity as they try to breathe and create and make profits under new and alien rules”.
Everybody I know who has been through mergers and acquisitions has said exactly the same thing: ‘It’s the longest three years of your life’.
The pressure for quarterly profits – driven by the bonuses paid to head office’s top honchos – are based on short term-ism and the quarterly report to the New York Stock exchange by the holding companies.
This international bonus scheme is a real disincentive for locals, and for growth and local profitability. The order arrives – we must reduce costs (a pseudonym for ‘sack people to deliver short-term profit’). As business author Tom Peters says: you can’t shrink your way to greatness. More is the pity that multinational agencies don’t heed his advice.
Throw out the baby with the bathwater
The real destructive work begins after the three-year contracts are up: get rid of the partners who built the acquired business and start all over again.
So the multinational ends up back at the starting gate, usually staffed by inexperienced long-term international agency employees who are generally not good business builders and have come up through the account service ranks.
The multinationals carry-over the cost of the acquisition for years on their books, causing a drag on the future.
The business loses most of the accounts from the acquisition and talented staff walk out the door or are poached by competitors because they can’t stomach the repressive international agency culture, and thus the carousel goes around once more.
It would be interesting to look back on the past 40 years of acquisition and track the results, I’m sure it would frighten the crap out of multinationals looking at acquisition as a strategy for growth in Australia. Or maybe it would make them rethink their acquisition strategy.
I hear pigs have been known to fly.
Australian ad agencies and brands that no longer exist, or are disappearing:
- Campaign Palace
- SPASM
- Weeks Morris Osbourne
- MOJO
- Box Emery & Partners
- Ad Partners
- Brown Melhuish Fishlock (now BMF)
- The Charlton Group
- Curtis Jones & Brown
- DDI Adworks
- Foster Nunn Loveder
- The Ideas Group
- John Bevins (closed on the retirement of founder)
- Oddfellows (now Oddfellows/Dentsu)
- Samuelson Talbot
- Simon Richards
- BCM Partnership De Pasquale
- Badjar
- Cook Green & Moore
- Cummins Ross (now Cummins & Partners)
- Dare
- Thomson White (now FCB)
- Words at Work
- Whybin\TBWA (now TWBA)
- Whybin Lawrence TBWA (now TWBA)
To name but a few…
Wayne Wood is a founder and director of The Wood Consultancy Melbourne
Agree whole-heartedly, Wayne; you know what you’re talking about. And so you should: several of the agencies on your list are ones that you have sold to the multinationals.
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Another example was the Y & R takeover of Mattingly. A complete cock up where neither Mattingly clients or staff could stomach the
Y & R culture which was toxic compared to Mattingly’s. The grey men in grey suits were completely unsuited to Mattingly’s retail energy, the straight forward management style and the honest client relationships. Those responsible at Y & R left, the clients left, and a great agency was gutted.
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de Pasquale never merged with BCM Partnership. They merged with Clemenger BBDO Brisbane. BCM Partnership is still operating and independent.
Another Brisbane shop to add to the list is is independent Junior that STW / WPP subsumed to make Ogilvy Brisbane.
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Just ask Accenture how the Reactive acquisition went for them. Only person hanging on is Tim O waiting for his payout.
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John Bevins was a closure rather than a merger/acquisition, wasn’t it?
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Hi JaySee,
Indeed, when John retired he decided to close the agency rather then sell off his name. The farewell was a sad day indeed given the universal esteem John is held in.
Wayne included the agency on the list as an example of a name that no longer exists, albeit not through merger or acquisition.
Cheers,
Simon – Advertising & Marketing Editor
I was there. That’s what happened.
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Not to forget John Singleton Advertising – wasn’t that an Australian takeover of a multi-national…. The multi-national won in the end though
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In digital specific design / creative agencies we’ve lost stacks…
Visual Jazz
DT
Millipede
Reactive
Simplicit
Stamford
Sputnik
Next Digital
SOAP
etc…
None have been the same post merger.
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Wayne, I wholeheartedly agree, having watched this sad cycle for more than forty years.
The ‘clash of cultures’ issue, reminds me of the Chiat/Day takeover of Mojo.
Chiat/Day’s Christmas card that year featured the sheet music for ‘Jingle Bells’ with the word ‘jingle’ blanked out. Inside the card it read “Merry Christmas, from the agency that’s never written a jingle”.
You could just tell that one was going to work out well …
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It takes two to tango.
As an independent, the owners / Executive Team do have a choice as to whether they decide to sell or not.
And in a material world, the rationale for so doing is rarely about protecting the people employed …although the ‘there’s now a world of opportunity for you’ promise often gets airtime.
We agree with the core reasons cited for mergers failing …but surely the blame needs to be shared.
Oh, and by the way …PigsCanFlyToo!!
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