Behind Accenture's groundbreaking Droga5 deal
Accenture Interactive today announced it has reached a deal to acquire Droga5 in what it's calling a game-changer for the business.
Buying Droga5 could put to rest the notion that consultants pose little threat to ad agencies because they lack creativity. Still, skeptics have questioned the ability of creative shops to thrive under the ownership of big consultancies, which have attempted to bolster their marketing services offerings in recent years via acquisitions.
Accenture Interactive did not disclose the financial terms of the deal. But a spokesman confirmed it was the largest agency acquisition the group has made when measured by price, revenue and headcount. That suggests a price tag north of the $283 million it paid in 2013 for Acquity Group, a large Chicago-based digital agency.
Droga5, which operates offices in New York and London, employs roughly 600 people. The agency reported 2018 revenue of $185 million, down 9.8 percent from 2017, marking its first annual revenue decline since it opened in 2006.
The acquisition effectively ends WME's ties with Droga5, says Droga5 founder and Creative Chairman David Droga. The talent agency had acquired a 49 percent stake in the agency in 2013.
Droga5 will retain its agency name, and the management team will remain intact: Droga will remain creative chairman; Sarah Thompson stays on as global CEO and Bill Scott will remain as U.K. CEO.
In a press release announcing the acquisition, Accenture called it "an evolution in Accenture Interactive's journey to build a new agency model—one with the power to engineer transformative brand experiences and infuse those experiences with the emotional and inspirational power of brand thinking and creativity.
"Joining forces with Droga5 will be a game-changing milestone for us and the industry as we continue to assemble the right mix of capabilities for the modern-day marketer," said Brian Whipple, global CEO of Accenture Interactive, in the release.
Droga in a phone interview said, "Neither company needs to do this, but both companies wanted to do this because of the opportunities it affords. ... I can create the work that creates great awareness for clients, but if their e-commerce isn't in sync, then what's the point? We built our agency by making all the things in the front of our decks for clients—but we're now going to redefine our industry by making all the moonshots in the back half, the most ambitious, transformational ideas that we didn't have the infrastructure or the skill set for."
He says this move is not his ticket out of the industry: "I'm not cashing out. I'm not riding off into the sunset on a kangaroo, but I do want to take it up a notch. I want to be one of the people that helps put the industry on its front foot again."
Jay Pattisall, a principal analyst at Forrester, in a blog post on the deal stated that it "cements a renewed emphasis on creativity in marketing." He added: "Combined with Accenture Interactive's technology, data, experience design, commerce and programmatic capabilities, the addition of Droga and [other acquisitions] helps move them one step closer to providing CMOs and marketer the integrated, scaled marketing solutions they require."
How the relationship started
Droga says that the agency first got to work with Accenture Interactive about three years ago, during a pitch on a census-related project for the U.S. government. "We realized they know how things work in the real world and put things in place that normally people don't think about—and how there's accountability with creativity. This won't eclipse the creativity, it will be complementary, and it's about being able to justify and shore up our most ambitious ideas. Math and magic need each other."
Droga, an Australia native, founded Droga5 in 2006 in New York, after he stepped down from his agency gig as worldwide creative director of Publicis. The agency first started out as an indie hotshop known for its daring creative ideas, including the UNICEF "Tap Project" that the agency conceived after Esquire magazine challenged Droga to change the world with a single magazine page, as well as the Marc Ecko "Still Free" stunt that saw a graffiti artist tagging Air Force One.
Over the years, the agency expanded to working with bigger, high-profile brands, including Under Armour, Prudential, Chase, Google, Sprint, Heineken USA's Dos Equis and Pizza Hut, the latter which it parted ways with last year. Its U.K. office handles Barclaycard.
Last year, the shop was behind IHOP's decision to become IHOB, temporarily, to promote its burgers. It also conceived the Cannes Lions Titanium-awarded "Dundee" Super Bowl campaign for Tourism Australia. At this year's Big Game, the agency conceived the idea to bring Bud Light into the world of "Game of Thrones" to hype the show's final season. Other notable efforts include The New York Times' "The Truth Is Hard" campaign, high-profile ads for Under Armour starring the likes of Misty Copeland and Lindsay Vonn, and the Cannes Grand Prix- winning campaign for MailChimp.
The agency was embroiled in controversy at the beginning of 2018, when it fired its New York Chief Creative Officer Ted Royer after an internal investigation. The agency at the time had said, "We are committed to maintaining a safe and inclusive environment for all our employees."
A small slice of the Accenture pie
Droga5 is a high-profile acquisition but will be a small revenue piece of the Accenture portfolio. Accenture Interactive reported 2018 worldwide revenue of $8.5 billion, according to Ad Age Datacenter. New York-based Accenture Interactive is a fast-growing branch of global consulting giant Accenture. Dublin-based Accenture reported worldwide net revenue of $39.6 billion in the fiscal 2018 ended August 2018, when it employed 459,000 people.
Ad Age Datacenter ranked Accenture Interactive as the world's sixth-largest agency company based on 2017 revenue, behind five big legacy agency firms (WPP, Omnicom Group, Publicis Groupe, Interpublic Group of Cos. and Dentsu Inc.). Ad Age Datacenter also ranked Accenture Interactive as the world's largest digital network. Accenture Interactive this year told Ad Age it works with 70 of the top 100 Fortune 500 companies.
Consultancies in recent years have sought a bigger foothold inside client marketing departments by wooing chief marketing officers with strategic and data analytics solutions to big business problems that traditional advertising can no longer solve. Accenture formed Accenture Interactive in 2009 after CMOs "became more responsible for business goals, not just brand goals," Whipple told Ad Age in a 2017 interview. Competing consultancies followed the same path by creating dedicated marketing services units. They include PwC Digital Services, Deloitte Digital, Cognizant Interactive and IBM iX.
Acquisitions have played a key role in the consultancies move to grow their creative reputations. IBM bought Resource/Ammirati, based in Columbus, Ohio; Deloitte acquired Heat, based in San Francisco; and Accenture took on Karmarama, a large independent creative shop in the U.K. The 2013 acquisition of London-based design firm Fjord was a significant creative move for Accenture.
Last year, Accenture Interactive reported nine acquisitions (Adaptly, New York; New Content, Brazil; Kaplan, Stockholm; Kolle Rebbe, Germany; HO Communication, Shanghai; MXM, New York; Mackevision, Germany; Rothco, Ireland; and Altima, France). The company acquired digital agency MXM—Meredith Xcelerated Marketing—from Meredith Corp. last May.
But Droga5 is by far the biggest creative shop acquisition by a consultancy when judged by name recognition. "This is a truly historic deal that literally resets the dynamics of the entire industry," says former Droga5 CEO and Vice Chairman Andrew Essex, who left the agency in 2015. "It's all about creative talent and business acumen. Not incumbency."
Still, critics of consultancies have long questioned the ability of the firms to integrate creative shops. The Droga5 deal will put this to the test because the shop has long championed the importance of independence and the creative freedom that it affords. But Droga argues that even with the acquisition, that freedom will remain:
"We were independent from compromise, from being commoditized by a holding company and being squeezed for efficiencies, but they are not buying us to milk money out of us—but for our thinking. I'm betting that what we do together I'll enjoy more than our independence."
Glen Hartman, Accenture Interactive's senior managing director for North America and global and digital marketing, in an interview said critics are "always trying to pit the consulting vibe versus the agency vibe. [But] we have been melding those definitions and blurring those lines for years." He added that "the culture at Accenture Interactive is far, far away from what a traditional stereotypical … consulting firm would look like. Our offices and studios look a lot like Droga5."
Contributing: Ann-Christine Diaz, Bradley Johnson, E.J. Schultz, Alexandra Jardine