For years, mid-sized independent agencies with 100 to 200 people thrived in the industry. Now, a new middle is emerging as these shops combine forces to take on bigger accounts and compete against major holding companies and large independents.

As industry executives continue fleeing the giants to open small shops, they are taking more of the projects and smaller accounts that primarily went to mid-sized agencies. That’s caused these shops to seek growth through mergers or partnerships with other agencies to chase the larger, and in some cases, integrated pitches that have long been dominated by holding companies.

In today’s environment, the majority of clients are either moving more toward project work or looking for integrated solutions, and everyone is vying for a slice of the pie.

“A lot of the smaller agencies are struggling a bit because you have bigger agencies that are leaning down to smaller pitches,” said Joe Maglio, the CEO of McKinney, whose parent company Cheil Worldwide just appointed him as CEO of Barbarian and president of Cheil North America as well. “And then you’ve got clients who want more integration, and they want more under one roof. You’re going to see a lot more, in my opinion, partnerships coming from the smaller agencies so that they don’t get excluded from opportunities because they don’t have the scale.”

While not a merger, Maglio’s recent promotion is the latest move within the industry to bring mid-sized agencies together. Cheil hopes it will allow its North American agencies to partner more closely on pitches.

The Cheil collaboration follows the merger of independent shops OKRP and Barkley in early March and Minneapolis-based agency Carmichael Lynch’s plans to absorb fellow Interpublic Group of Cos. agency Tierney Communications, which will increase the agency’s employee count to 375. In yet another type of union, Joan Creative partnered with Crossmedia in August to form JoanxMedia, an offering that combines their creative and media services.

Also read: Joan rebrands to reflect growing agency's evolution

Marketing and sales company Advantage Solutions recently combined five of its agencies—Upshot, Amp Agency, Genome, Hatch and SmallTalk—to form one agency with more than 400 employees. The move was a direct response “to clients’ growing demand to demonstrate both short-term marketing performance and long-term brand-building growth,” according to a statement by the agency.

Rather than merging, some small shops have also opted to join certain independent networks.

Corporate mergers and acquisitions overall are expected to rise 12% in 2024, according to a recent EY-Parthenon Deal Barometer report. That’s “due to recent improvement in the financial markets and expected reduction in interest rates,” said AAR Partners President Lisa Colantuono, adding that her consultancy started offering M&A work for smaller agencies due to the recent uptick in deals.

“These agency mergers are focused on helping to offer more efficient, effective and comprehensive solutions to marketers who are not only working with tighter budgets but also tighter timelines,” Colantuono said. “We’ve also noticed an increase in agency consolidation, which only helps the cause for M&A. A one-stop shop often leads to more efficiencies and more affordable fees” for clients.

Agency acquisitions—who’s buying and who could sell next

Complementary capabilities

These deals represent a “strong strategy” for mid-sized agencies, according to Jay Pattisall, VP and principal analyst at Forrester. The best deals, such as the one between Crossmedia and Joan, are born out of complementary lines of businesses between companies that “are not at all competitive,” Pattisall said. (JoanxMedia was formed after the two agencies pitched together to win the S&P Global account in 2022.)

Agencies complementing each other meet “brands’ needs for more connected marketing capabilities,” said Pattisall, who noted that over one-third of U.S. marketing executives have said they plan to integrate agency assignments. 

“Providing additional capabilities meets agencies’ needs for revenue opportunities and to stay competitive in the marketplace,” he added. “Nowhere are the needs for revenue and competitive advantage more needed than with independent agencies. 2023 was a difficult year for growth in the market and keeping up with holding company technology and scale is necessary.”

Pattisall said artificial intelligence could also fuel some more deals “as independent agency executives consider how to use creative automation and AI-powered production to augment their staff. Thousands of mid-sized and independent agencies face the choice of merging to grow or automating to grow.”

Early signs of success

Some agencies have already started seeing success with their deals.

Lisa Clunie, co-founder and CEO of Joan, said the agency has gotten into bigger pitches since partnering with Crossmedia, competing against holding companies for integrated accounts. Joan won a piece of creative business because it brought media to the pitch, said Clunie, who said she was not able to disclose the client.

“We love the integrated pitch and, honestly, we are an alternative for a true global or even U.S. integrated pitch,” she said.

The partnership is different from traditional mergers, according to Clunie and Crossmedia Co-Founder and CEO Kamran Asghar.

The “primary reason” Joan and Crossmedia partnered “is to have an integrated offering,” Asghar said. “I think that’s very different than what you’re seeing in the market today. What has been occurring is consolidation in the independent space, which we see as opportunities for independent agencies to scale and be competitive with holding companies and other independents. For us, the scale of each operation together [is] to offer true best-in-class media and best-in-class creative, not necessarily just to consolidate to be bigger.”

More independents may partner instead of formally merging to counter the holding company model, said Simone Mandel, the co-founder of consultancy NBZ Partner.

“We anticipate a surge in strategic collaborations, with independent agencies favoring partnerships over mergers,” Mandel said. “These alliances are designed to uphold their distinctive identities and value propositions, while also extending their reach and capabilities to meet clients’ needs.”

Strategic agency partnerships have become more commonplace, according to Greg Paull, principal at consultancy R3, especially for influencer pitches he is handling. “We’re running a lot of influencer pitches right now and almost all of these influencer agencies also have agencies as their clients.”

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Too much supply

Remaining independent was a must for Crossmedia and Joan, even as both continue to be approached by prospective buyers. Crossmedia’s Asghar said that it’s not easy for independents to stay independent in today’s market.

Both Asghar and Joan’s Clunie are “really proud of the fact that we don’t have investors that are requiring us to make financial contributions to their business, which means that we get to be more aggressive in terms of our innovation, in terms of driving the business forward on behalf of clients,” Clunie said.

It will still be hard to compete against some of the major holding companies that major marketers typically rely on to handle their multimillion-dollar accounts. And it remains to be seen if scaling to a certain size will help or hurt these agencies.

While adding capabilities that benefit clients is part of the decision for some agencies, there is likely a simpler reason for some of these changes, said Matt Ryan, CEO of consultancy Roth Ryan Hayes.

“Overall I believe these are agency operations and efficiency moves,” Ryan said. “There is simply an oversupply and lowering demand for general creative agency services. Consolidating, at any size, in the face of lowering demand allows the resulting company to operate more efficiently.”

Agency or machine?

A former CEO at a mid-sized agency, speaking on condition of anonymity, said they believe that the two winning agency models today appear to be either super small, with under 50 employees, or massive integrated holding company divisions that house everything for large clients. Mid-sized agencies are the most pressured and it’s unclear whether scaling to a certain size will help them, especially when merging creative businesses, they said.

The former agency CEO said mid-sized creative agencies are not “relevant anymore” because clients don’t need a lot of scale for that type of work. Before, “you needed a [big agency] where you had 1,000 people in the creative department. I don’t think clients need that kind of creative. They need that scale for technology and media,” they said, questioning then what “the end play” is for some of these mergers and deals.

One industry consultant, who spoke on condition of anonymity, said that clients require agencies to function as a “machine” capable of producing mass personalized content, CRM, media and more; this necessitates larger staffs. 

“The middle is always a scary place to be. That said, I don’t think it’s a death knell,” said Peter Grossman, U.S. regional lead of consultancy Flock Associates. “There are many clients out there who don’t have massive budgets and don’t want to work with the behemoths because they’re afraid they’ll get lost in the shuffle.”

He said even though marketers “respect the inventiveness and agility of the small creative shops, they need access to a partner that can activate full funnel. That’s why I think you’re seeing some consolidation in the middle,” Grossman said.

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Performance is key

“The jury is definitely out on whether bigger is better for clients,” said Simon Francis, founder and executive chairman of  Flock Associates. “It certainly does help agencies make better margins. We actually find that smaller agencies often get better agency appraisal scores than larger ones. It could be smaller agencies care more, give more attention, and founders get involved.”

Maglio argued that the sweet spot for agencies is mid-sized: not too small where there isn’t enough scale and tech prowess to deliver on marketers’ performance goals, but also not too big for clients to get the personalized attention they need.

Blake Mitchell, principal at Interact Brands, is approaching deals in a way that would allow his 32-person branding and design agency to remain a small boutique shop while adding capabilities that could make it more desirable to clients.

Interact Brands struck its first deal six months ago, investing in 25-person Los Angeles social media production shop Hello There Collective.

Mitchell said he has avoided turning his agency into a full-service shop because it would hurt its reputation and muddy what Interact does well, which is branding in the consumer space.

Branding is “the foundational work” that leads to other services, he said. “We’re not pitching it as ‘all in one.’”

Interact is looking for incubation, acquisitions or investments and hopes to do five deals that are complementary to its work, Mitchell said. For example, Interact can take on a client for a branding project and then funnel that client to its other partners as needed, such as to Hello There Collective on social media, he said.

More deals are expected in the agency space. 

“Market conditions are ripe for continued M&A activity,” said Steve Boehler, founding partner of consultancy Mercer Island Group. “There are many reasons. Some agency segments have plateaued and need daylight. Some need more capabilities or talent to offer a more complete, modern solution. And there are undervalued assets available—providing an efficient way for agencies to scale.”

But while agencies are focused on scale and capabilities, they will still need to prove their creative works.

“Clients are ultimately looking for the best creative solutions,” Paull said. “Every agency talks about its proprietary process, but what clients care about is whether this creative work [is] going to drive out better outcomes for me.”