Mirroring consolidation in the broader healthcare market, mergers and acquisitions activity and private equity investment in healthcare marketing agencies have surged in recent years. Despite ongoing economic turbulence, medical marketing agencies have sought out partners and aggressively targeted acquisition candidates to broaden their operations.
According to Larry DeAngelo, managing director and head of Houlihan Lokey’s Global Business Services Group, the primary goal among firms pursuing consolidation is to add capabilities and expand geographic reach – as opposed to growing for the sake of growth.
DeAngelo attributed PE firms’ increasing interest in the sector to a newfound sophistication in terms of how they view the business. He added that there will likely continue to be more specialization emerging from the market, rather than diminished innovation among competitors.
“You’re going to continue to see consolidation and organizations adding activities,” DeAngelo predicted.
As for broader issues around competition, DeAngelo noted that “it’s relatively inexpensive to start one of these agencies. So if you’re a new firm and you’ve got a great idea, there’s still a market even as these companies get bigger and bigger. I would be cautious to say that this trend is going to stifle competition.”
Gil Bashe, managing partner and chair of global health at Finn Partners, believes the ideal M&A strategy for marketing agencies focuses on how the move will be additive to the acquiring firm’s strategy. He noted that a fractured marketplace can often be improved through consolidation.
“I actually look at this trend as alignment of fragmented pieces,” Bashe explained. “I see it as a convergence of fragmented pieces that are recognizing that this piece and this piece together make more money, or are more effective in saving money and generating new income.”
As for the increased PE interest, Bashe – previously CEO of Health Quest Global Communication Partners, a GTCR-backed PE firm – attributed it to ROI opportunities and securing a profitable exit for shareholders.
Peter Finn, founding partner of Finn Partners, agreed, adding, “Because PE firms all have a specific lifetime – usually it’s seven years – they buy to build and then flip. That creates a lot of uncertainty for the acquired companies for the future. Who is going to be their owner and how are the decisions going to be made for the company?”
Finn doesn’t believe, however, that broader consolidation will meaningfully reduce options for clients, or that it will prompt widespread downsizing. Instead, he expects global players to focus instead on bolstering depth of services and expertise.
In a blog post from last summer exploring marketing agency consolidation, House of Revenue chief operating officer Charlie Warden wrote that aligning client messaging with a singular voice can improve “brand consistency, customer experience, cost-efficiency” and deliver better results.
Warden believes that firms finally understand how difficult it is to be an expert in every area of medical marketing. As a result, they are pursuing rollup strategies to bring offerings under a unified brand.
“I can see a world where that becomes [standard] and I’ve already started seeing it with a few competitors offering more of these holistic solutions with strategy and execution baked in,” he added.