The digital marketing space has gone through huge transformation in recent years as evolving social trends and technological developments change the way that people consume marketing messages.
This makes it imperative for marketing agencies and providers to adapt to this changing environment in order to target and engage their key audiences.
Today, marketing agencies are increasingly competing against data-led tech giants such as Adobe and Oracle, which are leveraging technology to stake out their territory and take a meaningful share of the market.
In today’s digital world, where change occurs overnight and a businesses’ ability to adapt can make or break it, organic growth alone just doesn’t cut it.
There is a growing trend for digital marketing businesses using acquisitions to accelerate their growth, drive change within their own organisations, and increase their presence and competitive capability set
Their motives are simple: a business that can gain real-time insight and a clear view of the target customer has a distinct competitive edge, but requires detailed data, insight and analytics to do so.
A history of acquiring key strengths
The acquisition of Merkle by Dentsu Aegis earlier this month is the latest and largest example of this trend.
A third of Merkle’s $450m revenues are generated through value-added data-enriched targeted agency services, with over half of its revenues coming from legacy database marketing.
Its agency services business is significantly more profitable, with more extensive scope for expansion. But this area is noticeably more competitive, and Merkle faces larger and very aggressive rivals in this space.
This need to grow and to remain competitive against the bigger players has spurred Merkle to complete 10 acquisitions in the last five years. One of Merkle’s recent high profile acquisitions saw the company acquire Comet Global Consulting, a leading provider of marketing automations and decisioning solutions.
A willingness to make highly-valued acquisitions needs to go hand in hand with a clear strategy for capturing the benefit they bring
In completing this deal, Merkle set out to strengthen the technology underpinning its data-led marketing model, in a bid to bridge the gap between the two parts of the business.
Dentsu has done the same, using acquisitions to drive international growth, buying ten other companies in this year to date alone. One of these saw the Japanese-owned media company acquire India-based Fountainhead Entertainment with the aim of linking capabilities to create the largest brand activation marketing agency in India.
This was a highly-valued acquisition, with Dentsu paying a reported 10x revenue – in striving to achieve consolidation, it paid a premium to acquire core expertise and data-led capabilities to spur growth in this region.
In another strategic move which illustrates its willingness to pay market-leading valuations in pursuit of its strategic imperatives, it acquired Fetch Media in 2014 in a deal estimated to be worth $48m – over 42x reported EBITDA.
New insights, new opportunities?
Both Dentsu and Merkle have struggled fully to integrate some of their acquisitions, and to cross-sell effectively between the various businesses that they have acquired over the years.
It is the challenges of cross selling within Merkle that will have many speculating about how Dentsu will extract the value from this acquisition and bring the businesses together
A willingness to make highly-valued acquisitions needs to go hand in hand with a clear strategy for capturing the benefit they bring, and a vision for integration that will see Dentsu dominate the digital marketing sector against large and aggressive competitors.