Management consultancies vs holding companies – The Full Story
To date only three of the global consultancies have established marketing specific divisions and these are all relatively new developments with IBM creating IX in 2014 and Accenture and Deloitte launching Interactive and Digital arms in 2009 and 2012 respectively.
In terms of scale, the revenues/ staffing numbers do not yet compare with that of the holding companies (holdcos). Nevertheless, they’re performing well though when you look at growth (Accenture 50+ per cent) and revenue per head is higher than the average holdco. The annual Cannes event this year saw perhaps the greatest coverage of the consultancies with their flags firmly flying at the event. Also, Ad Age has twice crowned Accenture as the largest digital network. In this article, we examine the acquisition volumes, strategies, cultural differences and what’s next in this hotly debated space.
Whilst the marketing specific divisions are not of the scale of the global holding companies of WPP, Omnicom and Publicis they do form part of significantly larger businesses which eclipse the size of the holding companies. Whilst there is a lot of similarity in shape and make-up of the holding companies, the likes of Accenture, Deloitte and IBM are all very different businesses with different origins ranging from public auditors, technology consultancy to hardware and technology IT services.
Acquisition volumes (2014 – June 2017)
Accenture leads the way followed by Deloitte in terms of number of deals across the marketing and digital services sector. IBM did four deals in rapid succession in 2016 but since then they have largely been quiet in the space.
The holdcos are proactively engaged in building out their service provision to remain competitive in the face of new entrants to the market. It’s worth noting WPP and Dentsu have each made more acquisitions than all of the 4 consultancies combined.
Along with IBM iX, Accenture Interactive and Deloitte Digital are the only consultancies that have actively invested in creative services. Consultancies that have made no or limited moves through M&A are the strategic consultancies, such as Bain, who operate at a different end of the spectrum doing pure strategic consultancy as opposed to IT transformation and IT consulting. McKinsey has only completed one deal in the space but already has a developer team of over 1,000, so they already have some of the key capabilities in house. Others, such as PwC, will pitch for work in the space but prefer to partner on UX design, data, creative partners & media or tech.
Total deals by geographic area – January 2014 to June 2017
The greater proportion of deals completed by the holding groups are in emerging markets, whereas the consultancies tend to buy new capabilities to broaden their offer for mature markets. Also, they are often looking to build on those skills organically, rather than through acquisition. Anecdotally too it would appear that with acquisitions like Fjord, Accenture expanded that brand rather than buying in competing businesses, which is traditionally how the holdcos have operated.
Accenture has talked about a US $1 billion pot set aside for acquisitions this year, whereas WPP (for example) spends about US $400 million per annum on acquisitions (per annual accounts). Average deal size for both WPP and Accenture in 2015 and 2016 is remarkably similar at around US $25 million which indicates that they are indeed buying similar size businesses and that in our industry, businesses ripe for sale tend to be in that ballpark value.
The main cultural difference between the consultancies and the holdcos is that the former don’t tend to buy competing businesses, whereas the holdcos have few qualms in doing so.
“We have an Accenture Interactive team that has deep tentacles reaching into the technology capabilities of Accenture to shepherd creative talent and that’s critical. We are not just another player in this ecosystem. We didn’t buy Karmarama to take their earnings and distribute them to shareholders — it’s about creating synergy for clients”. Brian Whipple, Senior Managing Director of Accenture Interactive.
In terms of business structure and deal structures, the consultancies are vertical, while the holdcos are company structure organised. There has been a lot of talk recently of holding company reorganisations to break down the silos when they go to market to offer clients the best possible proposition. Dentsu perhaps leading the way on this because of their one P&L by geography approach which fosters a more collaborative culture. On deals, management consultancies are less likely to do long earnouts whereas the holding companies have rarely varied from the three-five year earnout structure for acquisitions. The consultancies are also more likely to focus on revenue as they are buying capabilities to plug into their network rather than for profits.
I have one global management team and we go to market as Accenture Interactive. It may be that Fjord offers service design and Karmarama is in a similar brand space, but the Accenture Interactive team all has 100% aligned incentives, without separate founder incentives at all. Brian Whipple, Senior Managing Director of Accenture Interactive.
Although the holding company bosses have been playing down the threat from the consultancies, these players will go after the same clients and are indeed going after similar acquisition targets. The consultancies are undoubtedly in a good position to continue to leverage capabilities in the space given they typically have strong relationships with the C-Level. The relationships they have with Chief Information Officers and Chief Financial Officers are considered prized possessions. We expect to see further encroachment into the space by consultancies as they continue to show strong levels of intent, continue to adapt their offer and also deliver results. Success in this space is going to be contingent on being able to bring the right mix of talent, innovation and experience needed to deliver what are increasingly complex solutions and deliver this in a simplistic way for clients.
To read The Bulletin: Transforming Business, in full