Why search agencies are hot property

Search has seen a wave of consolidation that has left a handful of large independents. What does the future hold for them and the newly acquired companies? David Murphy reports.

Don't blink, or you might miss another acquisition. It's been a hectic few months in the world of search, with companies changing hands, with alacrity. Last December, Bigmouth Media was acquired by German search marketing company Global Media for a sum of around £50m. In February this year, Spannerworks was bought by US digital agency iCrossing for a sum widely and inaccurately reported as $18m (£9m), but which was in fact around $80m. In July - in the biggest deal yet - marketing agency TradeDoubler acquired The SearchWorks for £56m, and in the same month, Green Cathedral sold its main operating subsidiary, GCDM (Green Cathedral Digital Marketing), to Golley Slater Group. The latest deal, only this month, saw Fast Search snapped up by Swedish company Getupdated for £8.8m.

By the time these deals were announced, several players in the search space were already owned by larger groups, including Media Contacts, owned by MPG; 24/7 Real Media (WPP); Zed (Publicis); and All Response Media (Havas). All the activity means there are only a few remaining independent search specialists of any real size, including Steak Media, Greenlight, Latitude and Equi=Media. So what does the future hold for the independents, how are the newly acquired companies faring as part of a bigger group and what does it all mean for clients?

The first point to note is that consolidation has come as no real surprise to those involved in, or who follow, the search business.

Ollie Bishop, chief executive of Steak Media, says: "The only thing that has surprised me is how slow it has been. We got into this business two and a half years ago and at that point it looked like it would happen within a year. People have been sniffing around us ever since we started."

Complex undertaking

And Keith Hunt, chief executive of consultant and corporate finance company Results International, which is focused on the marketing and digital sectors, points out that search marketing is a complex undertaking that's quite a bit removed from traditional marketing services in terms of skill sets.

"Understanding Google and Yahoo!'s algorithms is not the normal sort of thing that leading marketing services people do, especially creatives," he says.

Because of this, says Hunt, there are not many people around with the necessary skills to set up a successful search business, which makes the ones that have managed it a valuable commodity and makes it even more likely that the agency networks will choose to expand into search via acquisition, rather than attempting to do so organically.

One of those to benefit from the networks' current love affair with search is Bigmouth Media chief executive Steve Leach. He says part of the attraction of the Global Media deal was quite simply that it allowed him and his wife Lindsay - 100% shareholders in the business - to release some of the capital of the business they had built from scratch over 10 years. He insists, however, that the pair remain committed to the business and says the deal will help expand the company.

"One major benefit of the deal is we have a good, savvy, private equity company behind us, which is absolutely committed to making this work," says Leach. "It means we have deep pockets if we want to reach that deep and can go ahead with our strategic vision and make further buys in geographical or vertical spaces."

Similarly, Paul Doleman, head of paid search and chief technical officer at Spannerworks, says the company's acquisition by iCrossing has had a significant impact on the business, enabling it to move forward much more quickly with its expansion plans and get in front of much bigger customers.

"There are brands out there we could not get in front of before," he says. "We are having conversations at a group level with brands such as Sears and Coca-Cola, and not just around marketing and return on investment, but also talking about the brand and looking at the customer journey."

Having started out as a search-centric company, says Doleman, the deal is enabling Spannerworks to broaden out into a search-centric full-service digital agency, encompassing usability, web development, creative and mobile, as well as paid and natural search. He points out that when the deal was done, Spannerworks employed 75 people. This number has since risen to 100. Group numbers have doubled from 300 to 600, principally through the acquisition of Proxicom, a 250-person creative agency that is moving around 35 staff over to the UK.

According to Doleman, the fit between Spannerworks and iCrossing was all important. He points out the deal was not the best offer on the table, saying: "We made sure we spoke the same language. There was a lot of dynamism and energy between us and this was important in choosing the best partner. We had nine hard offers on the table and we went with iCrossing based on who we thought would be the fit."

The ability to integrate search with other digital marketing services offered by a large group is a recurring theme among those search companies that have been swallowed up. At Publicis-owned Zed Media, the mantra is "Where all lines meet", an attempt to convey the idea that search is just one of many channels, above and below the line, where media needs to be bought in an integrated, holistic manner.

Zed board director (buying) Nick Burcher says: "We don't think you can execute channels in isolation. If you have a TV campaign running it will affect what happens with your search campaign, so you need to understand what the effects and the links are and track the sale process."

Burcher stops short of claiming that using a search provider as part of an integrated marketing service is better than using a stand-alone search specialist, but adds: "If it makes it easier to research the effects across different channels and move money round between channels, some clients see an advantage in that."

Organic growth

But not everyone is convinced. Greenlight chief executive Warren Cowan says that, like every search business, Greenlight has had offers, a reflection of the fact that "search is the new black". So far, he says, there has been nothing on the table to divert the company from its own plans for organic growth. And when it comes to the idea that an integrated search agency is better placed to include search activity with other channels than a search specialist, he's singularly unimpressed.

"There are no examples that I can think of, of a search agency existing and being integrated successfully with a large media buyer," he says.

Cowan points out that Greenlight has collaborated successfully with other agencies on several occasions to ensure search ties in with activity in other channels. He argues, too, that while campaigns start and end, search is ever-present.

"Campaigns come and go, but audiences persist," he says. "People are searching for car insurance on Google 24/7, 365 days a year, whether you are running a campaign or not. Search needs to be addressed full time, because you need to tap into this channel all-year round."

Additionally, he points out, when a brand runs a campaign around a particular strapline, such as Norwich Union's "Quote Me Happy", the number of people searching on the specific phrase used is minuscule, compared to the number of people searching on the more generic term, in this case, "car insurance".

"I'm not saying it doesn't happen, but when you look at the numbers, the fuss made over it is disproportionate," he says.

Other independents share Cowan's scepticism. At Latitude, chief executive Dylan Thwaites claims several companies on the acquisition trail originally approached him, but were rebuffed and moved on to the company they eventually acquired.

"There are very few big search agencies and even the bigger ones are not usually profitable, so being big and profitable makes people come knocking on our door," he says.

Specialism and expertise

Thwaites concedes that buyers are paying attractive multiples for search businesses, but with 20% of its own revenue coming from the more profitable search engine optimisation side of the business, Latitude says it does not need the financing as much as some other businesses, and is able to fund its own expansion.

He is sceptical about the big networks' search offerings, drawing a distinction between specialism and expertise.

"The big networks are not expert at all," he says. "Even those who have bought into it and put resource into it. A lot of the specialists are not experts either, so it's not a question of choosing a specialist or someone who's part of a network; it's a question of choosing an expert or a non-expert."

If it sounds unlikely that a brand would deliberately put its search business in the hands of someone less qualified to handle it than someone else, Thwaites insists it happens, for reasons of price, less sophisticated procurement operations and in situations - for fast-moving consumer goods brands for example - where search is considered less important to the brand than other activities, such as TV advertising.

He argues, too, that there is more to establishing a search division within an agency network than hiring one or two expert practitioners. "Search is a combination of scale, experience and software, which means it's very difficult to buy in a person and expect them to deliver at the same standard they did within a specialist agency," he says.

Like Thwaites, Steak Media's Bishop is confident it can survive, and thrive, as an independent, as is venture capitalist Beringea, which has just invested in the agency.

He points out that the company has picked up the search accounts for both British Gas and John Lewis in the past couple of months and says the question of whether or not a search company is independent will not be an issue for most clients, so long as it works well with other agencies, and can prove what it is doing is adding benefit to the client's business through the results it is generating.

Acquisition activity

Whether Steak Media, and the other independents, have managed to retain their solus status in 12 months' time, remains to be seen.

One thing is for sure, however. With many brands only having scratched the surface of the world of search marketing, a world that is still alien to many traditional marketers, the consolidation is unlikely to be finished for some time yet.

"There are sellers who want to realise some of their capital or want to join a bigger group, and there are a lot of big groups who don't have a search capability," says Results International's Hunt.

"When you have willing sellers and willing buyers, that creates a good market for acquisition activity."

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