In easily the highest profile deal the ad industry has seen in recent memory, Accenture Interactive announced this morning that it has fully acquired creative advertising agency Droga5, which counts Under Armour, HBO, the New York Times, Amazon, Covergirl, and more major brands as clients.
The deal will see all of Droga5’s 500 employees across offices in New York and London become a major creative cog in Accenture Interactive’s massive $8.5 billion digital customer experience and marketing services machine.
“We have bits and pieces of brand creative here in North America, but we didn’t have the best,” says Accenture Interactive CEO Brian Whipple. “David [Droga] and his team are the best, hands down, and now we’ll be adding that, which will just make our ability to make best-in-class experiences for clients–and communicate them to consumers–an incredible reality.”
“From our perspective, this is what a consultancy has to do,” says Forrester analyst Jay Pattisall. “You either have to double down and really aggressively pursue these creative capabilities to really help your clients distinguish themselves in the marketplace, or you have to get out.”
In that spirit, advertising agencies and their holding company overlords have spent the last few years searching for the best (read: most profitable) ways to navigate an increasingly volatile landscape in which major marketers want effective work that is always faster, better, and cheaper. Last fall, WPP merged multiple agency brands into new entities–Wunderman Thompson and VMLY&R, respectively–to streamline its spider web of interrelated companies, bringing together the capabilities of both digital and programmatic advertising with the creative and strategic side of persuasion. Sound familiar?
Friends before dating
The two companies, both named to Fast Company’s 2019 Most Innovative Companies in Advertising, first got to know each other about five years ago, when they teamed up to pitch for the $415 million 2020 Census account, eventually won by WPP’s Y&R (which reportedly came in with a low-ball bid). A relationship wasn’t in the cards at the time, but the two stayed in touch, dabbling here and there on smaller projects. In the summer of 2018, a rumor surfaced that a deal between the two could be in the works, but it was denied at the time.
So when the two leaders began talking more seriously last year about taking their companies’ relationship to the next level, these experiences provided the foundation for this deal, and each side’s confidence in its potential. “We got to know each other under the most natural of circumstances, which was really working together without any assumptions of anything else,” says Droga. “It put us in a position to see each other work beyond the platitudes, presentations, and credentials that companies put up around themselves and actually work in the trenches with someone. It was a massive eye-opener for us.”
Befitting this cordiality, both Droga and Whipple are quick to say that the deal was made from a position of strength on both sides, and Accenture Interactive is keeping Droga5’s leadership structure intact. Droga will continue in his role, Sarah Thompson remains global CEO, and Bill Scott will still be U.K. CEO, working alongside the rest of the agency’s management team. Droga and Whipple also emphasized the importance of maintaining the agency’s culture and said there wouldn’t be any major staffing or office moves as a direct result of the deal.
Acquisitive Accenture
Droga5 is Accenture Interactive’s biggest acquisition since the company’s inception in 2009–and Accenture Interactive’s third deal in just the last month (it picked up Danish and Dutch creative shops in March). More notably, it’s also the most significant creative buy by any consultancy since the global strategic conglomerates like Accenture, Deloitte, and PwC began training their sights on the marketing services business over the last decade. Up to now, none of the consultancies have managed to buy a creative shop with the pedigree of Droga5, a hot shop startup-turned-creative juggernaut, and perennial contender for top industry awards. From its first-ever viral hit in 2006 when it (fake!) tagged Air Force One for Marc Ecko, all the way up to recent work teaming with Wieden+Kennedy to brutally murder the Bud Knight for Game of Thrones, the agency has been one of the few consistently creating work that becomes a part of culture.
Although terms were not disclosed, it was widely reported in 2013 that the talent agency WME acquired a 49% stake of Droga5 for $115 million, which would have valued it at about $230 million at the time. Droga5 publicly stated revenues in 2015 and 2016 of $126 million and $170 million, respectively. Sources with knowledge of Droga5’s finances state that the agency has grown at least 20% every year since its 2006 founding, which conservatively would put 2018 revenue at $245 million. Advertising company valuations vary widely, with acquisition prices sometimes as low as three-tenths of revenues and sometimes as high as 10x. After all, the value is overwhelmingly in the people and the acquirer’s ability to retain them. The WME deal priced Droga5 at about four times revenue, but extrapolating that into 2019 would mean a highly unlikely price tag nearing $1 billion. More plausible is that WME (now Endeavor, and reportedly planning its own exit, via IPO) will at least recoup its investment and receive at least some premium if not a venture-style return on its investment.
Why now?
There will be some within the ad industry who see this as perfect timing for Droga5 to be acquired, citing declining creative quality and output over the past few years. That, though, is skewed by the insanely high standards the agency set in the first place.
Others will see Endeavor behind the curtain, orchestrating a deal as it cleans itself up pre-IPO. Sources close to Endeavor say that the deal represents an amicable break in a healthy relationship that has run its course. (Picture corporate conscious uncoupling, though the original Accenture rumor last year was tucked into a report that Droga was unhappy with Endeavor.) Since Endeavor (then WME-IMG) bought its stake in Droga5, it’s recognized the potential of brand communications, using Droga5 as the inspiration for building up its own 800-person in-house agency called Endeavor Global Marketing.
And maybe Accenture Interactive arrived here after it couldn’t land MDC Partners–home of the creative shops Anomaly, Crispin Porter + Bogusky, and 72andSunny, among others–back in December. Either way, here we are, and it’s the latest major move in an industry that is still grappling to find its best self in a world dominated by two ad-targeting companies.
A source familiar with Droga5 said the real culture shift inside the agency began with the WME (now Endeavor) deal and signing the lease on its current offices in 2013, which transplanted it from the East Village to Wall Street. The move was more than physical, representing the scrappy creative adolescent putting on a tie. The source says this latest move now makes perfect sense for the now-middle-aged agency.
When Droga5 sold that 49% stake to WME almost six years ago, the prevailing wisdom at the time was that it was a deft move, because branded entertainment–the splicing of Hollywood and Madison Avenue–was the future of advertising. And it kind of was. But in today’s world where advertising is everything and everything is advertising, Droga has once again made his move to position his company at the bleeding edge of the business.
With Accenture Interactive, a new course is being charted for these two companies–and maybe an industry to follow.
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