The acquisition of independent digital agency Glue London by Aegis for &£14.7m has prompted talk of further consolidation in the interactive marketing sector. But some observers think there is currently a dearth of independent digital agencies mature enough for acquisition.
Glue, which counts BSkyB, McDonald’s and Virgin among its clients, was set up by Mark Cridge in 1999. It was voted the Institute of Practitioners in Advertising’s Best of the Best digital agency earlier this year, but the &£14.7m Aegis is paying has raised eyebrows: Glue’s turnover was only about &£2.7m last year, generating a profit of just over &£300,000.
Marketing Services Intelligence editor Bob Willett says: “It’s unusual to buy an agency whose profits are quite low. Aegis might have come in for Glue now, before its profits get too high, but it’s almost as if Aegis is paying for that in advance.”
Aegis has never made a secret of the fact that it wants to build its digital operation and Glue will join its Isobar network, which owns Carat Digital and Diffiniti in the UK.
Omnicom’s digital agencies include Agency Republic and Agency.com, as well as digital divisions within below-the-line agencies such as Tequila and Proximity. WPP Group owns digital shop Outrider and all of its major networks have digital operations.
Jon Williams, creative director at WPP’s Wunderman Interactive, says: “The best place to position yourself in order to deliver holistic work is within a network. But having one little hot-shop does not make a network.”
Many see the Glue deal as recognition that digital is one of the few growth sectors in an industry that has been slowing down. Digital media specialist I-Level has been tipped as a possible target for a big group, as have creative shops Dare and AKQA and full-service agency Profero.
But none of these agencies has shown any signs of being ready to sell yet. Willett says: “I don’t see a large array of proven hot-shops out there. If there are people wanting to buy them but a scarcity of really high-quality agencies, that’s going to drive up prices. There won’t be many deals but the ones we do see will be at a premium.”
Glue and Aegis are understood to have been in talks for 18 months, but contracts were signed only last week. Cridge says: “Digital will have a huge impact on advertising in the years to come. As a result, there is a lot of sizing-up going on.”
He says that although there was some interest from the big networks, most enquiries came from the US and smaller companies in the UK. The US has seen similar big-money takeovers, but the majority of buyers have been agencies within the digital sector rather than the major networks.
Willett adds: “You’re going to be attractive if you’re a proven young digital company, but there are not many networks that will pay generously. There is a serious probability that companies will continue to pay healthy premiums to get these agencies, but the buyers may not always be traditional global groups.”
There is little doubt that as traditional media fragments, digital will become increasingly attractive. But the market has yet to mature fully and it seems it will be just a handful of select hot-shops that will tempt the networks to get their cheque books out.