Dale Taylor has always been frank about which side of the owned-versus-indie paradigm he’s on. In 2008, AbelsonTaylor’s then president/CEO declared to MM+M that “we may wind up being the last independent agency on the face of the Earth.” 

As that statement reflects, battle lines were drawn 15 years ago for a winner-take-all struggle between networks and standalone shops. The stakes? Supremacy of the healthcare marketing space. It never came to that, of course, as well-regarded shops wanting to scale yet retain their autonomy eventually bandied together to form their own networks. AbelsonTaylor’s move last week to join that trend was yet another example.

With the entry into the space of private-equity investors over the last half-decade, these upstarts have been able to pursue an even more ambitious growth agenda. Taken together, their moves have not only recast the aforementioned network/indie clash into something more akin to symmetrical warfare. They’ve upset valuations in the sector and established a new world order. At a fundamental level, they’ve disrupted the status quo, with the holding companies no longer having a monopoly on the “strategics” label.

“When you mentioned ‘strategic,’ you were generally talking about Omnicom or Publicis. Now you’re probably talking about any of these PE-backed firms,” observed Mark Martin, managing director at investment bank Houlihan Lokey. “Their success has been a function of doing a more informed job of providing the services that some of the large holding companies used to dominate.”

There are mid-sized networks — like Eversana Intouch, Fishawack Health, Inizio and Precision Value and Health — whose legacy agencies were known more for marketing or communications. They’re now expanding in targeted areas and repositioning themselves to become full-service commercialization providers. 

Other flavors of the new strategics include the ones espoused by Real Chemistry, Fingerpaint Group and Relevate Health Group, all of which have taken on PE funding to accelerate growth in certain areas. Then there’s Klick Health and AbelsonTaylor Group, which have their sights set on growing organically sans outside investment.

To be sure, the traditional holding companies have made moves of their own, such as rebrands — Omnicom Health Group announced theirs last week — and realignments. A prime example of the latter took place in 2021, when Interpublic Group networks FCB Health and McCann Health united under the IPG Health banner.

But organizations like Houlihan Lokey say they’ve seen a higher volume of smaller transactions led by these new sponsor-backed strategics acquiring add-ons that enhance capabilities and add scale. Yes, deal volume may have slowed of late amid rising interest rates and broader macroeconomic headwinds within the investor community. But despite the deceleration, transactions continue to get done, with financing markets supportive of M&A in the sector.

Martin, who has advised on a number of recent transactions in the space, believes it stems from a growing awareness of what the pharma customer is looking for.

“If you’re able to prove out that you’re best-in-class across multiple service lines as a provider, then that is helping win a broader basis of business,” he explained. 

In fact, many believe there is potentially exponential value for agencies able to follow a molecule from inception through its lifecycle, Martin explained. A growing set of companies are vying to occupy that broader space. 

At the individual brand level, clients are still willing to go to multiple providers to get white-glove service and capabilities. Still, the opportunity to build best-in-class across multiple different capabilities accounts for at least some of the recent PE infusions, such as Spectrum Science’s investment from equity backer Knox Lane in February.

“Pharma likes it and, frankly, the investor community likes it as well, because the industrial logic is there,” Martin said. “Because these platforms are suited for expansion, if they’re best-in-class in one of those areas, they’re more likely to be able to replicate that playbook in a similar fashion in a near adjacency, whether it’s pricing or access or moving more into HCP promotion.”

Then there’s the sentiment that the traditional health networks simply aren’t sized or structured for all clients — nor, for that matter, top agency talent. 

“There’s absolutely no substitute for some of that deep experience you get when you’re thrown into big, big pitches and huge brands and multi-, multi-disciplinary layers-upon-layers of management and teams,” noted Lisa Reid, who worked for several years as a senior executive at IPG’s McCann Echo before she and her sister Barbara Pantuso decided to strike out on their own. 

Very few creative agencies, it should be noted once again, are women-owned. The most commonly cited stat is a mere 1%. “It’s even more staggering when you see how many women work for these agencies,” Pantuso added.

With the goal of serving clients well and dispensing with the multiple managerial layers, the sisters founded pharma and med-tech marketing agency Nimble Works in 2014. They’re now launching Vital Works, a sibling agency that functions as both a conflict shop and a platform to expand the client roster, which already includes GE Healthcare, Clario and SomnoMed. 

The holding companies “are not going away. They don’t need me to tell them that, but they’re not. They are valued,” Reid added. “That said, they aren’t for everybody when it comes to the teams themselves, and they may not be for everybody when it comes to clients.”

This notion continues to be a factor in the genesis of new organizations, like Navi-Med-backed Citrus, Boundless Life Sciences (which was founded under the NPG Health umbrella) and Calcium+Company (an overarching structure formed to house its diversified units). Their common goal: To maintain the feeling of agility and relatively small company/team culture, despite head counts that could soar upward. 

To that end, up-and-comer networks typically aren’t looking to acquire just for the sake of service breadth. Many are focused on what they want to absorb. Think Real Chemistry’s data and AI buying spree, Relevate’s focus on HCP engagement or Lumanity’s and Fingerpaint’s separate acquisitions in market access and medical communications. All were powered by buy-and-build PE firms.

Market access is probably “unilaterally the most sought after area,” Martin said. That’s not only because of the traditional importance medical marketers ascribe to the reimbursement piece, but also due to the effects of the Inflation Reduction Act, in whose wake pharma will need to commercialize and monetize drugs more quickly before the onset of Medicare price negotiation.

“Manufacturers are recognizing that the window to monetize drugs is probably skewing even further toward the launch and immediate post-launch phase,” he explained.

Overall, PE firms are looking for what he called “sustainable differentiation” when investing in the space. “They want to understand why a business is going to continue to be uniquely capable of providing services that are not as easily replicable.”

Usually, founders who court outside monies are selling about two-thirds of their interest, rolling about one-third forward as reinvested money (and keeping proverbial skin in the game). In recent years it has become a seller’s market.

“The segment re-rated itself about four to five years ago as some of the larger platform deals initially happened and since then — frankly, since private equity continued to focus more and more on the space as a result of that — we’ve seen multiples go up pretty consistently,’ Martin continued. “They’ve been fairly constant for the last two years.”

Houlihan Lokey anticipates an increase of both transaction volume and size beginning later this year. Not surprisingly, that’s tied to what many see as solid prospects for good returns. One look at the latest MM+M A100 revenue table shows just how successful many of the new strategics have been in terms of muscling their way into the top quadrant of firms. 

If there’s one piece of advice Martin has for those who want to expand outside their core discipline, it’s to continue to focus on organic growth and excelling within a chosen niche. These are defining characteristics of the businesses that go on to success when adding additional capabilities, he said. Organic growth also continues to be a pivotal factor in premium valuations, as he noted on a previous podcast.

What’s next for the new strategics? Martin foresees an “ongoing evolution” of the trend toward adding and strengthening capabilities in adjacent sectors by these networks and platforms as they seek to become more attractive commercialization partners for pharma clients.

“It’s a continued focus toward scalability and differentiation, whether that’s across technology or scientific differentiation,” he predicted.

Martin also sees lines blurring between the heretofore siloed areas of commercial and clinical. “There’s an increasingly grayer area between services that used to be provided by clinical providers and CROs, and those that are being provided by legacy marketing and communications firms that are now morphing into a much more broad-based commercialization provider set.”

No one —  whether entrepreneur, banker or investor — sees the trend plateauing any time soon. As Dale Taylor explained in last week’s announcement of the 42-year-old firm’s decision to go the network route, it’s the “logical step.”