IBM, U.K. Consultancies Intrude on Digital Marketing M&A Wave

Non-traditional buyers have surfaced in the space globally, and many of them are making it known that they have war chests of $1 billion to spend.

Author:: James Skinner
Publish date:: May 12, 2016 3:30 PM EDT

Digitization and growing demand for customer experience management solutions have driven a wave of M&A across the global marketing and communications space in recent years, with more still to come in 2016. There is now a stampede taking place as companies scramble to keep up with the technology revolution.

This has given rise to a proliferation of non-traditional buyers like consultancies IBM Corp. (IBM) - Get Report and Accenture (ACN) - Get Report as well as "Big Four" professional services practices PricewaterhouseCoopers, Ernst & Young LLP and Deloitte Touche Tohmatsu Ltd. All of these firms have been increasing their respective footprints in the digital marketing and communications space and some still have considerable war chests on hand for M&A-driven expansion.

In an ominous sign of things to come for the throwbacks, Accenture, Dentsu Inc. and Merkle Inc. have all been open with the corporate finance community about their acquisitive inclinations of late and each have considerable war chests for M&A, said Afsor Miah of Ciesco Ltd., a London-based corporate finance that specializes in media and technology.

"These folks have got a billion dollars," he said. "A billion dollars seems to be the number that a lot of these guys bandy about."

The marketing and communications arena has been at the forefront of the digital revolution for awhile and this is unlikely to change any time soon, according to Miah. He labeled those who are driving innovation in areas such as advertising, marketing, mobile platforms and cyber security as the companies who are likely to be targeted by a growing pool of prospective acquirers.

Advertising and marketing platforms, and mobile technology producers, are the most sought after targets due to changing trends in how customers and clients use products or services, and how they interact with companies.

This has left buyers focused on acquiring platforms that add value and help clients to manage customer interactions across emerging digital channels, throughout the entirety of the customer journey, from initial contact all the way through to post sale or service experience.

Such a trend has obvious implications for more traditional marketing and communications companies such as WPP plc (WPPGY) Publicis Groupe SA and Omnicom Group Inc. (OMC) - Get Report.

Accenture and IBM are the furthest ahead out of all non-traditional buyers, according to Keith Hunt, managing partner at U.K.-based M&A consultancy Results International Group. "They are a threat to [traditional marketing and communications company] as they are effectively eating part of their lunch, although this threat does work both ways," he said.

Hunt then explained that the old-hat types could eventually push back, treading slightly on the consultancy model, by expanding their service offering to cover the breadth of the customer journey.

While it seems doubtful that traditional marketing and communications companies would be able, or even willing, to unseat the consultancies and professional services firms from their natural habitats, the question of whether or not the opposite applies remains open.

Of note, IBM took another step toward eclipsing the old-hatters in terms of service offering when it announced the planned acquisition of Blue Wolf Group LLC, a Salesforce.com Inc. consulting partner that specializes in cloud consulting and implementation, for an undisclosed sum at the end of March.

Blue Wolf will be integrated into the interactive experience division of IBM Global Business Services, extending IBM's abilities with large scale integration of cloud-based systems into existing corporate structures, and bolstering the appeal of its Customer Success Platform.

In the professional services world, EY announced the acquisition of Seren Ltd, which is now known as EY-Seren Ltd., a consultancy focused on digital design and customer service and experience, for an undisclosed sum in May 2015.

The move was the first of its kind for EY's U.K. advisory practice. When commenting on the acquisition, EY's UK chairman Steve Varley said: "We are already achieving considerable organic growth in the U.K. advisory business...but we are also committed to...inorganic growth, especially when we find firms with cutting-edge innovation and a really strong talent pool like Seren"