Industry publication Mumbrella has just posted my opinion piece on Accenture's acquisition of The Monkeys. I argue that for Accenture to successfully integrate The Monkeys into its business, the inevitable clash of cultures between the two organisations needs to be embraced rather than resisted.
Click here to read the article.
A lot of eyebrows were raised back in 2015 when content marketing agency King Content was acquired by the ASX-listed iSentia Limited. It was seen at the time as a powerful endorsement of the fledgling content marketing sector and a sign of its arrival as a genuinely mainstream area of marketing.
However, what really got people talking about this deal was the price. The headline screamed $48.0m – not a bad result for a company that only started in 2011.
Now, it’s true that more recently King Content hasn’t quite delivered for iSentia. The company’s share price dropped sharply in late 2016 after announcing that King Content failed to hit a revenue target. Nevertheless, the transaction contains several important lessons for anyone looking to build and sell a highly-valued marketing services business.
The first major lesson is scale. Generally, for a company to become a genuine acquisition target, it needs to have a certain level of scale. True acquisition targets need to be big enough to make a meaningful contribution to the acquirer’s bottom line.
Now, that’s not always the case. Sometimes a company may possess a certain technology or skillset or client that makes it strategically attractive to an acquirer. However, it always helps to be bigger rather than smaller.
In 2016 when iSentia acquired Content, iSentia’s revenue was $155.9m. That means that King Content’s annualised revenue of $23.5m represented about 15% of the larger company’s total revenue. It was a lot smaller but still large enough to be meaningful.
The chances of that deal being done had King Content’s revenue been only 5% or less would have been much, much lower. I have been in numerous discussions where a potential acquirer comes to the conclusion that the target company is just ultimately too small.
The second major lesson is growth. In its short life, King Content went from a single office to being a global player. At the time it was acquired, it had offices in Sydney, Melbourne, Singapore, Hong Kong, London and New York.
Executing a growth strategy isn’t necessarily easy. There is no shortage of companies across every industry that grew too fast, took on too much debt and ended up in the corporate graveyard.
Having said that, listed companies are under incessant pressure from analysts and shareholders to boost their top and bottom lines. Accordingly, they are prepared to pay handsomely for assets that will help them satisfy the market’s insatiable appetite for growth.
If you can build scale and demonstrate growth, there will be knocks on your door.
The third and final major lesson is that King Content was more than a mere marketing services provider – or at least that is how it was perceived by iSentia.
The business had built a content marketing platform called Communique that clients used to manage and monitor their campaigns.
It is well accepted that product businesses tend to be valued more highly than service businesses. There are several reasons for that. Products are more tangible than services businesses, which tend to rely on intangibles such as talent and culture. Also, a product business can be earning money even when everyone in the office is at home asleep. Service businesses typically can’t.
There is little doubt that iSentia placed a decent premium on the fact that King Content had tools and products and was not a pure service business.
The King Content acquisition has several lessons for marketing services entrepreneurs – at least those wanting to build and possibly sell for handsome returns. It is really worthwhile studying them.
Focus on building scale with strong growth and build complimentary products for your clients and the next $48.0m could be yours.
I think that December 12, 2016 is one of the most significant dates in the history of the Australian advertising and marketing industry. That was the day that advisory firm PwC announced it had hired Russel Howcroft as its Chief Creative Officer.
The man who become a minor celebrity on the back of his appearances on Gruen Transfer had previously been Executive General Manager of Network 10. Prior to that, he had spent many years in senior positions at various advertising agencies. He was the quintessential ad guy.
Until relatively recently, the idea of PwC – which is really just a glorified firm of accountants – hiring a funky ad guy would have been ridiculous. Having worked in both environments myself, I can tell you that they traditionally have very little in common.
That is, until digital and the terabytes of data that it generates emerged as the industry’s great disruptor. Suddenly, marketing and advertising transformed from being primarily a creative, intangible pursuit into something that the bean counters and their clients understood – numbers.
The area that Howcroft heads up – the CMO Advisory Practice – reportedly works across six critical areas: brand strategy, marketing strategy, market insights, marketing performance analytics, marketing structure & operations and even creative solutions.
I think that the PwCs of this world represent a tremendous threat to traditional advertising agencies. A bit like the old adage that no-one ever got fired for buying IBM, I bet there isn’t a marketer in any ASX 300 company that would get fired for hiring PwC. They are a smart and safe pair of hands.
The clear risk is that traditional agencies become increasingly marginalised as ever more consultants and analysts do the strategic work. Advertising agencies risk being marketing’s house painters, coming in at the end to make things pretty after all the hard work has already been done.
However, wherever there is a threat, there is also always an opportunity.
What PwC’s foray into the marketing world clearly says is that CMOs need help and that they are willing to pay handsomely for it. Just as advertising agencies have had to adapt to disruption so too have clients and they are willing to invest in quality advice and support.
Further, advisory practices like PwC are also looking to upskill not only through the hiring of high profile talent but also through acquisition. In February, Deloitte’s Toronto practice announced the acquisition of Cornerstone Group, an outfit that specialises in digital marketing and analytics.
Now, I’m not saying that we should all shut up shop and go and join an accounting firm. What I am saying is that the need for high quality marketing services has never been higher and the economic rewards for those that provide it is probably the richest it has ever been.