Hunt Grows Desperate as Digital Pool Shrinks

NEW YORK Last summer, digital shop Blast Radius found itself stuck in the middle—bigger than a boutique but not big enough to be truly global in the eyes of its clients, such as Nike and Electronic Arts. The 350-person shop also lacked certain capabilities, particularly offline. Blast had hit a wall and was looking for partners to get it to the next level.

At the same time, ad holding companies, agencies and private equity firms—all playing catch-up to the consumer shift toward digital media—were seeking to digitize their offerings quickly via acquisitions or major hires. After all, here it is, halfway through 2007, and most traditional agencies are still offering meager digital capabilities to clients long seeking new solutions.

So the anxious hordes—which in this case included private equity firms, Web technology companies and ad agencies like Publicis Groupe’s Saatchi & Saatchi, according to sources—descended on this six-office, $60 million company. The shop is now in advanced talks with WPP Group, which has steadily invested in digital capabilities this year (see chart). Blast and WPP declined to comment.

The wooing of this midsize, relatively unknown shop by a diverse mix of big-league players epitomizes a frenzied seller’s market that has produced scores of digital deals since Publicis’ $1.3 billion acquisition of Digitas in January. The stiff competition to acquire a $60 million company also is indicative of a shrinking pool of independents and the realization among buyers that despite years of talk about the need for digital talent, they still don’t have all that they need.

A look at the various agency plans to get digital fast reveals an industry scrambling for solutions, but not necessarily any closer to finding one.

Saatchi, which failed in its pursuit of Blast, is looking to blend a digital acquisition into its agency, rather than keep it separate. Similarly, Omnicom Group’s TBWA is mulling the possibility of folding its Tequila interactive unit into the global network.

That’s a core question facing TBWA’s new global chief digital officer Colleen DeCourcy, who starts this month. She’ll also consider deals to fill gaps in the shop’s offering. Her boss, president worldwide Tom Carroll, summed up the situation for his agency and the industry as a whole: “I don’t think we’re behind, but we’re not ahead. So therefore we’re behind.” He added: “We’re probably like everybody else, so we’ve got to work twice as hard to get ahead.”

Interpublic Group agencies also are in the acquisition hunt, with Lowe, for example, looking to do a deal either domestically or internationally that would cover multiple markets, said sources. The search is in the early stages, however, having begun only this summer.

“People are looking for pools of talent,” said Greg Smith, a managing director at New York merger and acquisition firm AdMedia Partners. Smith, who estimated that the volume of digital deals this year is two to three times what it has been in years past, cited Google’s $3 billion purchase of DoubleClick in particular as an accelerant. “It really sent shock waves through the industry,” Smith said. “It just really got people’s attention focused.”

Given the limited supply of independent shops, agencies are at the same time redoubling their efforts to recruit digital talent across disciplines. So even while they’re chasing shops on the M&A front, they’re looking to digitize their staffs hire by hire, department by department.

“Our core strategy is to develop an embedded interactive offering from the inside out,” said Y&R worldwide CEO Hamish McLennan.

Said Saatchi worldwide CEO Kevin Roberts: “We are building creative capability organically. And to accelerate this we’re interested in acquiring proven creative digital talent startups because client demand is growing fast and we want to be ahead.”

Underscoring just how rapidly consumers are outpacing the agencies at adopting to digital thinking is a recent IBM survey on media consumption that revealed a nearly equal percentage of the 888 U.S. adults surveyed spend as much time online as they do watching television—60 percent spend one to four hours on the Internet each day versus 66 percent watching one to four hours of TV. Based on the findings, IBM said agencies need to go beyond traditional creative roles to become “brokers of consumer insights.”

“It’s a mind shift. It’s a role shift,” said Saul Berman, a global leader in IBM’s Media and Entertainment Strategy and Change practice. “It’s not good enough just to buy digital capability. It’s important to understand how to reach the consumer.”

A traditional agency’s pitch—to either digital shops or individuals—can be difficult, given the myriad options that the shops and talent face. Networks also lost ground to other employers when they failed to restock with younger talent after staff cutbacks in the late 1990s, said Matt Wells, global head of digital at The Talent Business in London.

As a result, some digital creatives are skeptical about their prospects at an ad agency, Wells said. “It’s not as easy a sell as the ad agencies think it is,” he added, “because the reality doesn’t meet the rhetoric.”

Blast, for its part, is seeking a deal that would preserve its brand identity and open doors to more clients at the senior-most levels, said sources. The 10-year-old shop is considering either investments or an outright purchase, though the latter seems more likely given that bigger shops like Digitas have sold out.

While Blast CEO Gurval Caer would not discuss specific overtures, he reflected on his year of being wooed.

“We certainly appreciate the expressions of interest. We’ve had our dark days as well. So you end up remaining pretty levelheaded about these things,” Caer said. “What’s going to be good for the clients, what’s going to be good for the business is ultimately what’s going to make the difference.

“It has been a 10-year journey,” he added. “There have been great moments, there have been very tough moments. This industry has gone through, as you know, a roller coaster [ride]. So, you kind of look at this with a long-term perspective and you realize that again, what matters is the work, the results, the clients, the people, the talent.

“The rest is more a way to get there. Everything else is more a way to build an agency. It’s a means to an end. It’s not an end to itself.”