AI: Transforming Business Management Consultancies vs Marketing Holdcos Media Buying Consolidation Impact of GDPR Our HealthTech Proposition ISSUE 68 THE BULLETIN ALSO IN THIS ISSUE Leading adviser on M&A and fundraising to the global marketing, technology and healthcare sectors
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AI: Transforming Business
Management Consultancies vs Marketing HoldcosMedia Buying ConsolidationImpact of GDPROur HealthTech Proposition
ISSUE 68
THE BULLETIN
ALSO IN THIS ISSUE
Leading adviser on M&A and fundraisingto the global marketing, technologyand healthcare sectors
Dentsu109
Publicis59
Omnicon29
WPP133
IPG24
IN THIS ISSUE...
ABOUT RESULTS
2
OUR LATEST DEALS
3
Accenture36
Deloitte24
PwC9
EY5
IBM54-5
MANAGEMENT CONSULTANCIES VS MARKETING HOLDCOS
AI: TRANSFORMING BUSINESS
6-7
M&A:MARCOMS
8
M&A: MEDIA BUYING
9
INDIAN BUYERS INTO EUROPE
10
MID-MARKET US M&A
11
GDPR: A DRIVER OF CYBER M&A
12
DRIVING VALUE FROM HEALTHCARE DATA
13
OUR HEALTHTECH PROPOSITION
14
OUR QUARTERLY REPORTS AND MEET THE TEAM
15
ABOUT RESULTS
YEARS OFRi DEALS
50PEOPLE
250+ YEARS EXPERIENCE
10NATIONALITIES
3SECTORS
3OFFICES
TOTAL DEALS
1,000 BUYERS & INVESTORS
DEALS INPAST 2 YEARS
REFERENCEABLE
25+25
250+
100%
2
www.resultsig.com
20+
3
www.resultsig.com
OUR LATEST DEALS
has been acquired for £84m by
has been acquired byhas been acquired by
has been acquired byhas been acquired byhas acquired
has signed a definitive merger agreement, valuing inVentiv at $4.6bn with a joint enterprise
value of $7.4bn
has been acquired byhas signed a definitive agreement to acquire the Swords, Dublin
manufacturing site from
has secured an investment from
has acquiredhas been acquired by
It has been a busy year at Results having completed 12 deals globally across all of our sectors since October 2016
MANAGEMENT CONSULTANCIES VS. HOLDING COMPANIES – THE FULL STORYTo date only three of the global consultancies have established marketing specific divisions and these are all relatively new developments with IBM creating IX in 2014 and Accenture and Deloitte launching Interactive and Digital arms in 2009 and 2012 respectively.
In terms of scale, the revenues/ staffing
numbers do not yet compare with that of the
holding companies (holdcos). Nevertheless,
they’re performing well though when you
look at growth (Accenture 50+ per cent) and
revenue per head is higher than the average
holdco. The annual Cannes event this year
saw perhaps the greatest coverage of the
consultancies with their flags firmly flying at
the event. Also, Ad Age has twice crowned
Accenture as the largest digital network.
In this article, we examine the acquisition
volumes, strategies, cultural differences and
what’s next in this hotly debated space.
Accenture leads the way followed by Deloitte
in terms of number of deals across the
marketing and digital services sector.
IBM did four deals in rapid succession in
2016 but since then they have largely been
quiet in the space.
The holdcos are proactively engaged in
building out their service provision to remain
competitive in the face of new entrants to the
market.
It’s worth noting WPP and Dentsu have
each made more acquisitions than all of the
4
consultancies combined. Along with IBM iX,
Accenture Interactive and Deloitte Digital
are the only consultancies that have actively
invested in creative services.
Consultancies that have made no or limited
moves through M&A are the strategic
consultancies, such as Bain, who operate
at a different end of the spectrum doing
pure strategic consultancy as opposed to IT
transformation and IT consulting.
McKinsey has only completed one deal in
the space but already has a developer team
of over 1,000, so they already have some of
the key capabilities in house. Others, such
as PwC, will pitch for work in the space
but prefer to partner on UX design, data,
creative partners & media or tech.
www.resultsig.com
Company Staff Revenue Revenue/Emp $’000s
Accenture interactive 13K $4.4bn 339 / head
IBM iX 10K $3.0bn 300 / head
Deloitte Digital 7K $1.2bn 171 / head
WPP 133K $18.3bn 138 / head
Omnicom 79K $15.4bn 196 / head
Publicis 78K $10.6bn 137 / head
IPG 50K $7.8bn 158 / headPlease note figures have been rounded
90
80
70
60
50
40
30
20
10
0
IBM
Revenue ($bn)
DeloitteAccenture
IBM iXDeloitteDigital
AccentureInteractive
OmniconWPP
Publicis
Accenture36
Deloitte24
PwC9
EY5
IBM5
Dentsu109
Publicis59
Omnicon29
WPP133
IPG24
Financial comparisons
Whilst the marketing specific divisions are not
of the scale of the global holding companies
of WPP, Omnicom and Publicis they do form
part of significantly larger businesses which
eclipse the size of the holding companies.
Whilst there is a lot of similarity in shape and
make-up of the holding companies, the likes of
Accenture, Deloitte and IBM are all very different
businesses with different origins ranging from
public auditors, technology consultancy to
hardware and technology IT services.
Acquisition volumes (2014-June 2017)
MANAGEMENT CONSULTANCIES VS. HOLDING COMPANIES – THE FULL STORY
Total deals by geographic area – January 2014 to June 2017
The greater proportion of deals completed by the holding groups are in emerging markets, whereas the consultancies tend to buy new capabilities to broaden their offer for mature markets. Also, they are often looking to build on those skills organically, rather than through acquisition. Anecdotally too it would appear that with acquisitions like Fjord, Accenture expanded that brand rather than buying in competing businesses, which is traditionally how the holdcos have operated.
Deep pockets
Accenture has talked about a US $1 billion pot set aside for acquisitions this year, whereas WPP (for example) spends about US $400 million per annum on acquisitions (per annual accounts). Average deal size for both WPP and Accenture in 2015 and 2016 is remarkably similar at around US $25 million which indicates that they are indeed buying similar size businesses and that in our industry, businesses ripe for sale tend to be in that ballpark value.
Cultural differences
The main cultural difference between the consultancies and the holdcos is that the former don’t tend to buy competing businesses, whereas the holdcos have few qualms in doing so.
We have an Accenture Interactive team that has deep tentacles reaching into the technology capabilities of Accenture to shepherd creative talent and that’s critical. We are not just another player in this ecosystem. We didn’t buy Karmarama to take their earnings and distribute them to shareholders — it’s about creating synergy for clients.
Brian Whipple, Senior Managing Director of Accenture Interactive
In terms of business structure and deal structures, the consultancies are vertical, while the holdcos are company structure organised.
There has been a lot of talk recently of holding company reorganisations to break down the
silos when they go to market to offer clients the best possible proposition. Dentsu perhaps leading the way on this because of their one P&L by geography approach which fosters a more collaborative culture.
On deals, management consultancies are less likely to do long earnouts whereas the holding companies have rarely varied from the three-five year earnout structure for acquisitions. The consultancies are also more likely to focus on revenue as they are buying capabilities to plug into their network rather than for profits.
I have one global management team and we go to market as Accenture Interactive. It may be that Fjord offers service design and Karmarama is in a similar brand space, but the Accenture Interactive team all has 100% aligned incentives, without separate founder incentives at all.
Brian Whipple, Senior Managing Director of Accenture Interactive
What’s next?
Although the holding company bosses have been playing down the threat from the
consultancies, these players will go after
the same clients and are indeed going after
similar acquisition targets.
The consultancies are undoubtedly in
a good position to continue to leverage
capabilities in the space given they typically
have strong relationships with the C-Level.
The relationships they have with Chief
Information Officers and Chief Financial
Officers are considered prized possessions.
We expect to see further encroachment into
the space by consultancies as they continue
to show strong levels of intent, continue to
adapt their offer and also deliver results.
Success in this space is going to be
contingent on being able to bring the right
mix of talent, innovation and experience
needed to deliver what are increasingly
complex solutions and deliver this in a
simplistic way for clients.
www.resultsig.com
0
Management Consultancies Marcoms Networks
20 40
Geographic Targets
60 80 100 120 140 160 180
Other mature markets
Emerging markets
Europe
USA
6
AI: TRANSFORMING BUSINESS – PANEL DISCUSSION
the field to get the benefit of their expertise
and experiences in bringing AI into the
business world:
• Chris Mairs, Founding Chairman
of Magic Pony – one of Europe’s most
successful machine learning software
companies. The company was sold to
Twitter for a reported $150 million last
year.
• Mark Davies, VP Biomedical
Informatics at BenevolentAI, one of the
largest private AI companies in Europe.
Mark oversees the company’s use of AI to
enhance and accelerate biomedical
scientific research.
• Simon Kelly, former Chief Sales
OfficerofBabylonHealth, a healthcare
company using AI to transform the
consumer healthcare experience.
The discussion was wide-ranging but we
were left with several important takeaways:
Data, data, data
The value of unique data sets in the
successful application of AI and ML is
at least as important, possibly more so,
than the strength of the algorithms. The
starting point for any enterprise looking to
put in place an AI strategy, should be to
look at the unique data sets it can access.
The importance of big data in AI brings
its own challenges – deep learning needs
almost unimaginable quantities of data, but
that data first needs to be cleansed and
“labelled”. Without labelling you cannot train
a machine with a new task. The human
brain is very good at labelling and, for now,
learning how to label accurately without
extensive human intervention is still a major
challenge for any AI platform.
www.resultsig.com
It feels like in 2017 we have reached a
tipping point in the adoption of artificial
intelligence (AI) and machine learning (ML).
In the same way that the advent of the
smartphone enabled new entrants such as
Uber, Airbnb and Amazon to disrupt their
established and traditional competitors, AI is
poised to cause even greater disruption to
the status quo. Whether you’re a start-up or
an established market leader, AI needs to be
at the heart of what you’re doing. But with
all the noise and confusion in the market,
how do start-ups and more established
businesses alike ensure they don’t go down
the wrong path or get left behind?
At our breakfast briefing AI: Transforming
Business, Results turned to three leaders in
‘We are going to see AI being most disruptive in the healthcare and finance industries.’ - Simon Kelly @Babylon Health
“We’re moving from a mobile-first to an AI-first world.” Sundar Pichai, Google CEO, May 2017
7
AI: TRANSFORMING BUSINESS – PANEL DISCUSSIONMore data will be created this year than in
‘90% of all online data has been created in the last few years.’ -Mark Davies@benevolent_ai
‘You cannot put your head in the sand and say we will not be doing AI, the train has already left the station.’ -Chris Mairs Magic Pony
from their screen and cut through a highly fragmented marcoms landscape.
That’s creating more demand for agencies
able to offer these more in-depth customer
experiences, on top of the continuing
need for buyers to reinforce their digital
credentials.
The US continued to be the most active
region for deals with 171 completed in H1
and 78 completed in APAC.
European based acquirers were more active
with 128 deals this year compared to 106
deals during the first half of 2016, including
acquirers such as Serviceplan, Havas and
Publicis.
It’s unclear if Brexit uncertainty is causing
fewer international buyers to look to the
UK, but other hubs like Paris and Berlin are
certainly trying to attract a larger slice of the
marketing services and technology pie and
this could be reflected in deal geographies.
M&A: MARCOMS DEALS IN H1
Dentsu Group has been the most active network for M&A deals within marketing communications during the second quarter of 2017, against a relatively flat global backdrop. 438 deals have been completed during the first half of the year in the Marcoms space, with 219 conducted during the second quarter (the same number as during Q1). This compares to 506 deals in the first half of 2016.
The most active acquirer was Dentsu with 16 transactions (12 in Q2 and 4 in Q1).
Accenture was also busy with six deals completed in H1 (five alone in Q2), including the mobile design and development business Intrepid and German digital shop SinnerSchrader in February.
Digital agencies still rule the roost for overall deal volumes. Full service digital deals continued to be the largest sector with 14 per cent of deals taking place during H1
(60 deals), as the holding groups seek a combination of shoring up their offer against new entrants, keeping up with the pace of technology developments and developing new markets. This was followed by integrated with 45 deals and events and experiential at 35 deals including agencies such as MayNineteen, Wasabi Atelier Experiential, Playnetwork and FullSense.
Indeed, interest in events and experiential is greater than we’ve seen for years. Brands are increasingly trying to offer the best customer experiences as they try to target younger consumers, drag people away
WHAT IS DRIVING CONSOLIDATION AND VALUE DIFFERENTIAL IN MEDIA BUYING?Media buying is a sector under continuous consolidation. Media buying agencies have long been the targets for consolidation by the large marketing groups competing with each other to amass the largest amount of buying power for both brands and publishers. Independent media agencies offering any scale (particularly those with digital and programmatic skill) are therefore scarce and valuable assets.
The growth and adoption of programmatic
digital media buying has given rise to the
birth of hundreds of new start-ups every
year promising innovation in the space –
optimising better, more automated analytics,
and more efficient media buying. The number
of new companies being founded each year
has caused fragmentation in the market and
an invigorated M&A environment – buyers
have a lot of acquisition options now when it
comes to acquiring media power.
Speaking of buyers - it’s no longer the
large marketing groups who are acquiring
now. Telco’s publishers, broadcasters, data
aggregators, software vendors, Chinese
industrial magnates and other categories
of buyer are entering the sector through
acquisition. Valuations are polarised with
some deals with multiples ranging from 1x
(Sizmek acquiring Rocketfuel), 3x (SingTel
acquiring Turn) through to 6x revenue and
above (Altice acquiring Teads).
But what really drives this value differential?
Scale of media revenue is a driver but here are
five others underpinning consolidation right now:
1. Multi/Omni-channelcapability–
Display, search, mobile, video
(programmatic or not) – new market
The Indian corporate sector has evolved rapidly over the years since the economy opened up to foreign direct investment (FDI). Until the turn of the century, the news of Indian companies acquiring American-European entities was very rare. However, this scenario has taken a U-turn and nowadays, news of Indian companies acquiring foreign businesses is more common than the other way round.
November 2016 marked the beginning of a period of uncertainty for public and private markets around the world. Among Donald Trump’s heated pre-election topics were immigration, tax and antitrust reform. However, despite continued uncertainty amongst all three, US markets have returned consistent gains and since November 8, 2016, the S&P 500, Nasdaq Composite and Dow Jones Industrial Average have risen 14 per cent, 20 per cent and 16 per cent respectively.
Strong deal activity in the UK cybersecurity consultancy market
Unsurprisingly M&A markets in the cybersecurity consultancy market have remained buoyant with a series of transactions over the last few months.
Notable examples include F-Secure’s acquisition of penetration testing provider Digital Assurance, (F-Secure was advised by Results International), Claranet’s acquisition of Sec-1 and Altran’s acquisition of Information Risk Management.
The diversity of buyer groups from security software vendors to managed services providers and consultancies reflects the growing strategic interest in the space from a broad universe of counterparties.
Looking ahead, we expect M&A deal activities in the space to remain strong and given the scarcity of targets of genuine scale in the cyber consultancy market, it will certainly be interesting to see which companies on the list will be snapped up next.
Countdown for GDPR – are you prepared?
Next year, the General Data Protection Regulation (GDPR) will introduce the biggest changes to data protection in Europe in two decades, with companies facing fines of up to 4 per cent of their annual turnover if their data is hacked without having adequate measures in place.
Companies are racing to tighten up their security defences before this new regulation becomes effective. Ahead of this, the Information Commissioner’s Office (ICO) has released a series of recommendations to help companies ensure they are compliant with amongst others, the use of penetration testing and regular vulnerability assessments to continually assess applications and critical infrastructures for security exposures.
Many other global regulatory bodies (e.g. New York State Department of Financial Services) have also since followed suit and are increasingly demanding annual penetration testing as part of their compliance requirements.
Huge demand for penetration testing services
Reflecting this growing regulatory shift, there
has been a significant uptick in spending on security testing services with increasing
adoption not just in highly targeted sectors
(e.g. government, financial services and
defence) but across a multitude of other
verticals as well.
A recent report conducted by Markets and
Markets estimated that spending in the global
penetration testing market will surpass US
$1.7 billion by 2021, at a CAGR of 23.7 per
cent over the forecast period - the fastest
growing segment in the global information
security market.
That said, there remains a significant gap in
the market as demand for security testing
services far outstrips the supply of talented
ethical hackers.
Cyber consultancies with sophisticated
technical capabilities, talent and highly
differentiated offerings are well positioned to
reap the awards of an ever-evolving threat
landscape.
These businesses also remain highly attractive
acquisition targets for companies looking to
bolster their security services capabilities in the
areas of penetration testing or for those who
are looking to enter a rapidly growing market.
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www.resultsig.com
GDPR: A DRIVER OF CYBER M&A
The current state of the art in
artificial intelligence (AI) lags
far behind the standard tropes
of science fiction. Most science
fictional representation of AI is
based on ‘general’ AI, producing
a convincing emulation of
human personality, insight and
intelligence with a propensity to
then extrapolate that to a mad
tech-based demagoguery.
Fortunately reality is still a little different
with most AI being ‘narrow’, restricted to
making our lives easier via the application
of machine learning and Natural Language
Processing (NLP) to interpret and generate
value from big data sets.
IBM’s Watson and Google’s DeepMind
are the most well-known embodiments
of this vanguard defeating human chess
grand masters and proponents of ‘Go’ and
‘Jeopardy’. Watson has been applied to
a number of healthcare related problems
including diagnosis of human cancer
patients but to date has not been greatly
successful with MD Anderson terminating
their collaboration with IBM when Watson
failed to achieve a 90 per cent or better
diagnosis rate in cases of suspected
Leukaemia. The whole sorry saga has cost
MD Anderson US $62 million to date.
Experts have suggested that IBM’s Watson
has fallen short on two counts: the quality
of the data going into it (rubbish in, rubbish
out); and its ability to work with unstructured
data via NLP. Unstructured data is just what
the name suggests, text based speech,
such as this article, commonly found in
physicians notes, research papers, patents
and commentaries.
Other companies are notably achieving
early commercial success by focussing
on improving this state of affairs in one or
www.resultsig.com
13
DRIVING VALUE FROM UNSTRUCTURED DATA IN HEALTHCARE
OUR HEALTHTECH PROPOSITIONWe caught up with two of our partners Martin Gouldstone and Chris Lewis to discuss our unique HealthTech proposition and some of the key drivers of M&A in the space
Martin’s background spans a vast trajectory, originally starting out as a scientist in genetics, he worked on DNA fingerprinting when it was first discovered. He then joined the pharma industry in about 1990 and has had a lot of different roles in the healthcare sector from selling drugs to developing drugs and running M&A for Quintiles in Europe. Martin joined Results at the beginning of 2017, after spending over 3 years leading
the life sciences sector at BDO.
“I was attracted to the great depth of industry knowledge and expertise at Results”
14
www.resultsig.com
Chris LewisPartner
Martin GouldstonePartner
What do you think makes Results’ HealthTech proposition so compelling?
Chris and I come to HealthTech with slightly different perspectives and between us we have worked on deals across the entire ecosystem. I am coming from a life sciences patient disease modification angle and can therefore provide deep sector expertise whereas Chris approaches it from an in-depth technology angle. Indeed, the deals that we have collectively worked on in the space are a good representation of this, namely CRF Health and PhlexGlobal which are both at the services end but using technology for clinical development and Zinc Ahead and iSoft which are suppliers of software applications to the wider life sciences and healthcare community.
Our different perspectives enable us to provide a unique proposition to our clients but it is also important to recognise that whilst Martin and I are spearheading the HealthTech practice at Results, this is not just about Martin and I. This is about the whole firm and the fact that we have more than 50 people globally now, many of whom are focused on Healthcare or Technology and the intersection between them. This gives us the breadth of experience, exposure and expertise to add unrivalled value to our clients.
Yes I would completely agree with that and this global reach combined with real sector and technology expertise gives us a deep rooted knowledge of what is a very global and broad buyer universe ranging from contract research organisations (CROs) in the pharmaceutical sector all the way through to large scale enterprise software businesses like Oracle or IBM. Collectively as a firm, we understand the buyers, their motivations, their strategies and how they operate compared to groups that might just focus on technology, healthcare or life sciences in isolation.
What are the key drivers in HealthTech from an M&A perspective?
CL: From a technology perspective, many of the drivers in life sciences and healthcare are the same as they are in other verticals but with some sector-specific issues on top. The most pertinent drivers include increasing automation to drive efficiencies, improved patient outcomes and regulatory compliance and security which is incredibly important when you start to think about patient data in healthcare. It is of course, about utilising machine learning and other big data techniques to get real value out of this data.
Completely agree. Innovation in big pharma is a real problem. If you can use machine learning and other Artificial Intelligence (AI) techniques to identify or trawl through very large data sets, in patents and in published papers, to identify new drug targets and approaches for cancers
in particular or Alzheimer’s disease that is tremendously valuable. What you have seen is large organisations like Apple or Facebook progressively owning healthcare data but without the means or the tools to analyse that data it remains pretty meaningless. Therefore, companies that can do this will be very sought after from an M&A perspective.
I think the other point is that if you
consider the advantage an organisation gains
from employing big data analytics to drive
genuine insights – in a clinical trial situation,
the stakes for the blockbuster drug are just
so high that technology and the advancement
in that technology is as fundamental to the
industry as the compounds themselves.
How does the Results HealthTech offer compare?
The sector is quite fragmented in
terms of the offering with pockets here and
there and people that might have done the
odd deal but I think if you are looking at a
concentration of both sets of expertise in one
place, having done the deals we have done,
I would say we are a scarce commodity.
Chris has been working in technology sector investment banking for over 20 years. Over that time, Chris
has worked across a number of horizontals and verticals within technology, across multiple geographies,
in both M&A and fundraising.
“I really like the dynamism of tech and when you add in the healthcare dynamic too it is a very compelling space to work in”
‘The key drivers are automation, efficiency, security and innovation and technology and the advancement in that technology is fundamental to the industry’
‘We bring together years of deep healthcare, life sciences sector and technology expertise and we do this globally’