‘King of the Hill’ is an old children’s game that involved one player trying to stay on top of the hill while all the other players tried to knock them off and take their place, thus becoming the new King of the Hill. The game could get quite rowdy and has probably now gone the same way as conkers and ‘Bulldog’. (ie, no longer allowed).
I was reminded of this game when reading Moore Kingston Smith’s review of 2019, ‘Mergers And Acquisitions In The Marketing & Media Sectors’. The big networks were once very much the Kings of the Hill but have now been firmly dislodged by Private Equity houses. According to MKS, PE houses accounted for no less than a quarter of all deals done in the sectors in both 2018 and 2019 and as such, they are now the new Kings of The Hill. And MKS predicts they’ll still be there in 2020 too.
Ciesco’s ‘2019 Global M&A Review & 2020 Outlook’ reported much the same. And these players clearly won’t be dislodged any time soon. Flush with large pools of capital, they’ll happily play as rough as you like, witness Bain Capital’s $4bn swoop on ailing WPP’s Kantor, eclipsed only by KKR’s $7bn purchase of Germany’s Axel Springer. In fact, according to Ciesco, KKR emerged last year as the most active PE buyer, with no less than ten deals completed in 2019.
MKS’s prediction for 2020 is proving prescient, witness this week’s news that publicly quoted UK PR group Huntsworth is to be taken private in a $511m deal by private equity firm CD&R.
What all these PE houses realise is that the long held view, that an agencies’ assets walk out the door each day, is increasingly out dated and in fact, as Ciesco’s report notes, most companies in the sector now have business models predicated on – sometime proprietary – technology that offers 'recurring revenues, client retention, scalability, margin enhancement, regular cash flows and buy & build expansion opportunities’.
No wonder PE houses are splashing the cash, to the tune of $58bn spent on over 600 deals in 2019 alone. Bearing in mind they only spent $14bn just two years earlier in 2017 and you can see why they may be the kings for a while yet.
Also bear in mind that the PE industry is reputed to have $1.45trillion available to spend and it becomes increasingly difficult to see the global networks ever standing on top of the hill again. Global networks may be no but other consultancies maybe. Accenture, Deloitte, EY and Cap Gemini between them have completed over 90 M&A deals in this sector in the last fours year with Accenture proving to be the most acquisitive, completing 16 deals in 2019 alone.
Coronavirus aside, MKS’s view of the future is undeniably positive. “With Britain’s withdrawal from the EU underway, we expect the previously seen wait-and-see approach to be less common”, the report’s author writes. In other words, deal flow should pick up.
Finally, a shameless plug for Selbey Anderson which was described in MKS’s report as a ‘new kid on the block’. Encouragingly, they went on to write about us, “We’ll be watching with great interest to see how it continues to evolve its business model in 2020”.
Hopefully, they won’t have too long to wait.