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Agency mergers and acquisitions and why they fail
September, 21st 2016

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.wayne-woodMultinationals 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).businesswoman drawing big fish on the wall

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.thinkstockphotos-half-black-white-chss-piece-merger

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-circle-of-innovation-you-cant-shrink-your-way-to-greatness-tom-peters-book-coverThe 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

 
 
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