Congratulations to Heat and Deloitte!
On February 29, Deloitte announced that it has acquired substantially all the assets of Heat to establish the world’s first creative digital consultancy.
Madison Alley advised Heat as its exclusive M&A Advisor on this landmark industry transaction.
Heat is a full-service advertising agency that believes in the power of surprise to build brands, solve problems, and kindly take over the world.
Below is the headline and link to the Wall Street Journal article.
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By SUZANNE VRANICA
Wall Street Journal
Feb. 29, 2016 10:52 a.m. ET
Deloitte Digital Buys Creative Agency Heat
Management consultants are moving deeper into Madison Avenue’s territory.
Consulting firms have spent years working with chief executive officers and chief information officers on tasks ranging from developing high-end business strategies to implementing new technology.
Now, they are increasingly targeting the chief marketing officer as the marketing segment of the C-suite is becoming more responsible for the overall customer experience.
In addition to coming up with communications strategies, marketing chiefs are under the gun to drive tangible results and help reinvent the business. Plus, CMOs are spending more money on information technology services nowadays.
As consulting firms try to win more work with the digital marketing side of the business, they are sharpening and building out their creative credentials, long the territory of traditional advertising firms.
Deloitte LLP is the latest example. The company has acquired Heat, a 110–person creative agency that has done work for companies such as videogame marker Electronic Arts Inc. and travel website Hotwire. Terms of the deal, which is being announced Monday, aren’t being disclosed.
Heat, which won several awards during last year’s Cannes Lions advertising festival, is the 11th digital marketing company that Deloitte has bought since it launched its creative consulting unit, Deloitte Digital, in 2012. The unit, with about 7,000 employees and $2.1 billion in revenue last year, is one of the biggest digital agencies in the world.
Deloitte is just one of the many consulting firms and technology consultants that have created big digital marketing and design divisions in the past few years, thanks in part to purchases of companies with capabilities such as building user experiences, digital marketing, design, and Web and mobile development skills. Now many are starting to ramp up their creative expertise.
“We realized the consulting industry needs a bit of a shake up and the way you do that is bring creative thinking to the business,” said Andy Main, chief executive of Deloitte Digital. Mr. Main said he needs good creative skills to be part of everything the company does from designing a loyalty program to overhauling the experience people have when they visit a car dealership.
PricewaterhouseCoopers LLP said it is in the process of buying two or three digital creative firms in Europe and Asia that will be part of its PwC Digital division, which had $1.2 billion in revenue in 2015. Meanwhile, IBM snapped up three different firms this month that specialize in digital marketing, creative and design, including Resource/Ammirati, a digital creative agency that works with companies such as Nestlé and Toys “R” Us. IBM Interactive Experience said it has over 10,000 employees and posted revenue of about $1.9 billion for 2015.
Companies like Deloitte, PwC and IBM are expanding the traditional set of companies competing for marketing dollars, in turning challenging advertising giants such as WPP PLC, Publicis Groupe SA and Omnicom Group Inc.
The new entrants “are definitely trying to move into the turf” of the ad holding companies, said Anjali Yakkundi, an analyst at Forrester. “They are all trying to gain traction with chief marketing officers.”
In January, Celebrity Cruises named Accenture Interactive, a unit of the broader consulting and tech services firm, as its digital agency of record.
The evolution of the CMO role has opened the door for consulting firms to want cozier relationship with marketers, analysts said.
“We want to address the new addenda of the CMO,” said Glen Hartman, head of Accenture Interactive North America.
Reinventing businesses is something that “management consultants have historically been good at,” said Jay B. Wilson, a research director at Gartner. Meanwhile, digital agencies owned by ad companies have largely been focused on “marketing communications and have been less responsible for building experiences” in things like e-commerce and less involved in revenue generation, he added.
Deloitte recently worked with LG Electronics to launch Signature Kitchen Suite, a new brand of high-end appliances. It helped do strategic planning work, developed consumer insights and help LG learn more about how to reach its target customer through digital channels. Deloitte recommended Heat to LG and it was given the task of creating the advertising that brought to life the business and marketing strategy that the companies had developed together.
Despite holding talks with several companies, Heat said it was swayed by Deloitte because it gives the shop the chance to build a new type of agency.
“We know there are weaknesses in the modern advertising agency model and we want to redefine and reinvent it,” said John Elder, Heat’s president.
Madison Avenue’s top brass, including WPP CEO Martin Sorrell and Interpublic CEO Michael Roth, have acknowledged that consulting firms like Accenture, Deloitte and IBM are among their long list of competitors—along with firms like Salesforce and Oracle.
“I know our competitors—whether it be the tech companies or consulting companies—are trying to have inroads,” Mr. Roth said last year during the company’s second-quarter earnings call. But he defended the unique role agencies play. “We do have that secret sauce, as I put it, in terms of bringing that creative aspect to all of these different tools and resources. We’re the ones who are going to provide that, because this is where the talent wants to be.”
The consulting firms aren’t alone in broadening their purview. Ad companies have also expanded deeper into the domain of consulting firms by buying up more technology firms and consulting practices to add to their services, and some have pushed deep into product development and strategy work.
About a year ago, Publicis Groupe completed the $3.7 billion acquisition of Sapient Corp., a digital consulting firm that not only offers creative execution but also provides services such as system integrations, website development, and e-commerce and app development.
That doesn’t mean the management consultants’ ongoing investments in creative aren’t a threat to ad companies.
“So far they have approached the spaces slowly and steadily, but they are looming ever larger because of the size and resource of their individual parent companies,” said Brian Wieser, senior research analyst at Pivotal Research.