The Accenture acquisition of the ad agency Droga5 may signal a trend that will be a game-changer for PR firms. While it represents a new competitive threat, it could also be a positive merger opportunity for PR agencies, particularly those that have digital capabilities or aspirations. To seize on that opportunity, leaders of creative agencies need to understand the dynamic that drove the Droga5 acquisition and then take decisive steps to ensure they benefit if that dynamic picks up momentum.
So, what drove the merger? In its announcement, Accenture said that adding Droga5 to their consultancy “represents an evolution in Accenture’s journey to build a new agency model—one with the power to engineer transformative brand experiences, and infuse those experiences with the emotional and inspirational power of brand thinking and creativity.” This is a strong endorsement of the increasing value of company brands and intangible assets. That’s good news for PR agencies.
Will that one deal start a trend? The challenge will be to integrate a high-energy, creative Droga5 with Accenture Interactive, the digital arm of a strategic consulting firm known for its deep analytical capabilities. Meeting that challenge will produce a confluence of the oxygen that drives the Droga5 culture with the technology and business acumen of Accenture that could result in an entirely new level of strategic synergies and client stickiness for consultants. If that happens, we could easily see Deloitte, PWC, EY, KPMG, IBM, McKinsey and other global consultancies follow Accenture into the creative arena.
We can then expect significant disruption of the management consulting, marketing and communications services industries. Management consultancies will need to make major adjustments to accommodate the intuitive techniques and free-flowing culture of creative services agencies. Since most major management consultancies have far more robust data analytics and digital technologies and related talent than creative firms, PR agencies that offer the digital and data services that are now in such high demand could in the future find it more difficult to compete with management consultancies that have a creative arm. As the former owner of a CPA firm and for the past nineteen years the owner of an M&A Advisory firm, both specializing in creative services businesses, I firmly believe that those disruptive forces can have significant benefits for PR agencies that choose to merge with management consulting firms. In fact, I think the combination of PR and management consulting has far more potential than the previous consolidation of PR firms with advertising holding companies where public relations subsidiaries often had to compete with sister companies for marketing budgets driven by a vastly different pricing structure. With some notable exceptions, corporate consulting and other non-marketing PR agency practices and pricing are less understood by marketing conglomerates than they would be by management consultancies.
Given my experience with that previous wave of holding company consolidation, I’ll take this opportunity to offer my advice to consultancies and the creative service firms that chose to move down the merger path.
First, the most successful PR acquisition candidates will be agencies with solid organizational fundamentals and strong financial controls. While this is always important, it will be more so for acquirers that are in the business of counseling sound management principles. I anticipate that I’ll be helping my clients who are interested in such a merger to demonstrate their strategic and financial performance in such a way that it will be most appreciated and valued by consultancy firms.
Second, aggressive collaboration and innovative integration preparation will be necessary for such a game-changing business model. Here it will be critical for agencies to designate one or two executives with an extensive understanding of the agency’s practices, products and processes to a merger integration team. In addition to all the regular integration tasks, they need to ensure that the agency’s intangible and intuitive assets are protected and fully understood by colleagues who have little creative services experience.
Finally, there should be a recognition that the most disruptive threat will be preserving and maximizing the human capital of two firms with vastly different populations of left and right brain talent. Upon execution of the letter of intent, the firms should jointly engage an independent human capital specialist to review during the due diligence phase the two firms’ cultures, competencies, high value talent, succession plans, compensation programs and other factors that will affect a smooth and fast integration of talent. Using that information, the independent specialist will develop an integration plan that can be executed post-closing to reduce cultural gaps, retain top talent and foster collaboration.
The vision driving the Accenture-Droga5 deal offers new revenue streams for consultancies and PR agencies and for PR professionals to broaden their horizons — but only if carefully considered and managed.
My bottom-line advice to PR firm owners is to assess the disruptive technologies and other forces affecting the PR industry and the investments required to capitalize on those forces. After considering the pros and cons, if you decide that a merger with a management consultancy makes sense, don’t wait. Have a valuation of your firm done now so you know what it’s worth and have an action plan to sell at the highest valuation.
How this transaction will impact the PR industry remains to be seen. Time will tell if it will be a trend. If it is, it will have a huge and disruptive impact on the PR industry.
Rick Gould, CPA, J.D., is managing partner of Gould+Partners, a New York-based management consulting firm specializing in creative services firms and M&A.