What you need to know:

• Howatson+Company (H+C) has acquired Kenny Hill’s 'special ops' creative outfit, Akkomplice. Boss Chris Howatson describes it as the agency’s first and last acquisition. Probably.
• Hill and his tight team have joined H+C’s Melbourne office, with clients including Sorbent, Wesfarmers-owned Totally Workwear and Slater & Gordon already onboarded.
• The businesses have been merged as one “from day one”, with no earn-out period – Hill says he’s not it in “to make a buck and run off” and sees a similarly long-term opportunity for his people and clients.
• Hill, a former MD of M&C Saatchi Melbourne, and a 303Lowe, DDB and one-time JWT exec, said the decision to sell a decade after launching the business is in response to shifting market dynamics, especially around CX and digital capabilities increasingly being requested by clients. Akkomplice can't deliver that on its own – but can as part of a bigger end-to-end unit that Hill suggests is on par with the multinational holding companies but “without all the baggage that comes with it”.
• Howatson said acquisition was not on his roadmap – he’s maintaining an agency ceiling of 200 heads and a “never sell” mentality, which means strict criteria for the clients and people he’ll take on. But Howatson accepts there is always an exception.
• The merger brings H+C’s headcount up to 135, leaving some headroom on that self-imposed limit. But AI automation may ultimately see it untested, though Howatson suggests headcount across the industry may not shrink as fast as some suggest given its importance to most billing models. But ultimately, he says staffing levels will "crash out", leaving agency structures smaller and more top-heavy – i.e. fewer juniors.
• Howatson sees ongoing consolidation from marketers under pressure to more for less, which likely means the in-housing trend will continue and less healthy margins for agencies.
• He thinks that underlines the importance of integrated delivery of a greater breadth and depth of services – especially as retainers are swapped out for project models across the board, further holing traditional agency economics.
• Howatson also thinks that the trend for consolidation and in-housing around business transformation could also now start to hit the consultants and advisories previously riding a post-Covid wave.

A decade after leaving M&C Saatchi to launch Akkomplice, Kenny Hill has found a new home for the Melbourne-based ‘special ops’ creative outfit within Chris Howatson’s integrated agency business, Howatson+Company (H+C).

There’ll be no earnout, with the intention being that the two businesses will operate as one unit “from day one”.

“It was a commitment that we’re happy with how the business looks now with no pressure on the future,” said Howatson. “We didn’t want it to feel like there were two businesses. We didn’t want any kind of disruption to our culture or Kenny’s culture.”

Hill says he’s in it for the long haul. There’ll be “no alphabetti spaghetti” with the naming convention, the merged agency will continue to operate as Howatson+Company, and Akkomplice’s clients (including Slater & Gordon, Sorbent, and Totally Workwear) will all be rolled over.

“This isn't one of those classic sale acquisition things where I'm just looking to make a buck and run off as quick as I can,” said Hill, a Scotsman who started out in advertising 26 years ago with JWT in London.

The deal brings H+C’s headcount up to 135, with Howatson vowing never to go beyond 200 staff when he launched the business in early 2021 after nearly two decades at Clemenger Group. He also said he'd never sell in a bid to build the next great Australian agency – and likewise never planned to buy in order to protect culture. The Akkomplice deal, per Howatson, came about almost by accident, and could be the first and last acquisition that his agency ever makes.

“We’re not looking to buy companies,” Howatson told Mi3. “Howatson+Company is only going to be as big as 200 people, so our criteria for the clients that we take on and the people that we take on have to be very culturally conforming to what we’ve got and protecting what we have.”

“Kenny's team and his clients tick all those boxes. So even though it wasn't in our designated future, it just sort of happened, which is good.”

Full service or bust?

For Hill, merging into a bigger shop was necessitated by an increasingly demanding market that, he admitted, Akkomplice was no longer equipped to face on its own.

“You guys know all the changes that are coming, the way the market's going, and I think if you're a small agency, like Akkomplice, there's some big waves out there to navigate.”

Hill founded Akkomplice at the start of the last indie renaissance. He says the agency was built to respond to demand for agile and collaborative creative, servicing strategic briefs across retainer and project work – “the sort of stuff that the CEO couldn’t find another way to tackle”.

“Our sweet spot was punching above our weight and getting into big clients," said Hill, who worked with Kellogg's back in London with JWT and then reestablished the relationship locally as a trusted independent partner. "Kellogg's is a good example where they have an ongoing established relationship with the big multinationals, but we would be their 'special ops', if you like, doing some of the more strategic projects.”

Some of the agency’s most famous credits include “Darrell Lea makes it better”, a proposition for which Akkomplice managed to convince the Australian chocolate manufacturer to go palm-oil free.

But ten years since that launch, the increasing prevalence of more integrated briefs is making life harder for the specialists.

While the agency has a long history of partnering with other specialist agencies, Hill became acutely aware that without the deep expertise needed to pull off CX and data work, viability was threatened – and a merger made more sense than trying to build that capability organically.

It's an existential challenge other independents are now pondering – with many of the traditional exit routes seemingly closed off.

Not growth for growth’s sake

Hill started to sound out potential partners at the end of 2023. He had conversations with a few other agencies, but says Howatson+Company was “pretty second to none” given its ethos, capability and independence.

“You can go super big intergalactic Death Star stuff – the international holdcos – but having been there before, I didn't want to be in that sort of environment again,” said Hill. H+C can compete with the biggest multinationals, he suggests, “without all the baggage that comes with it”.

“We both been in the big holdcos. We've both been in those meetings where you're sitting with spreadsheets and putting rulers through people's names – and it's hideous.”

By contrast, he said that “not a shred” of Howatson’s philosophy is “growth for growth's sake”.

“When you've got a CFO in London or wherever breathing down your neck, demanding growth for growth's sake, it's a very different proposition to what Chris is setting out to achieve – and is already achieving.”

“What's been very promising about this whole merging of our agencies, I guess, is we share a lot of similar philosophies,” added Howatson. “Kenny is very, very well-known across the advertising and client community for deeply, deeply caring about his clients.”

“He never presented it to me like he was worried for himself. But he wanted to make sure his clients would be in a better position by doing whatever he did next.”

Hill kept clients abreast of developments from the get-go: “I do feel I owe them something, and if this wasn't going to work for them, if there was a conflict, I would never want to leave them high and dry.”

Akkomplice’s talent – a small team of fewer than 10 – were also at the forefront of the merger.

“I'm the sole owner of Akkomplice, I kind of bootstrapped it, but I can't do it without great people,” added Hill. “I was really keen that wherever I went, it wasn't going to just be for my own benefit. It was for theirs too.”

With the deal done and dusted, Hill’s team have set up shop in the creative department of H+C’s Melbourne office. For now, Hill has no set role within the agency, and will be dedicating his time to the “smooth integration” of the businesses. But he's unlikely to be twiddling his thumbs.

“The priority right now is to make sure that those clients that he's bringing over a super happy,” per Howatson. “Then there's always something new that comes into the agency that will get us and Kenny busy.”

Headcount versus AI automation

While Howatson is sticking to his guns on the agency's size ceiling, he said there are no plans to "shut the doors" when – or if – it hits 200 headcount. AI might make that target redundant anyway, given most groups are expecting some shrinkage as a result, though how agencies bill in the age of generative AI poses a challenge.

In the short term, Howatson reckons there’ll be a “transitionary period between the current way of how things are done, and how AI automates it”.

For now, that means there will be costs associated with experimentation and “maybe higher margin on some things that weren't there before” that will keep things moving.

Eventually, Howatson thinks the market will “normalise” and headcount “will crash out”, with AI replacing junior and senior roles alike. Though he’s hopeful that advertising experience will still be relevant, which may favour the latter.

“I think what will end up happening is you'll have smaller agency structures with more senior people in them, and less junior people. But who knows – we'll wait and see, I guess.”

CMO consolidation mission

All of this lends itself to the overarching industry shift towards consolidation, with clients faced with increasingly complex remits spanning brand, customer, product, technology, data and analytics. Resource in terms of headcount and budget is often static at best – hence marketers needing to do much more with less and pushing that squeeze through the supply chain.

Meanwhile, channel fragmentation means it is harder – and more expensive – to do traditional mass paid advertising.

“Australia has always been a reasonably small island and most mid-market brands have had enough money to be able to do advertising that reaches everybody,” said Howatson.

“That's not possible anymore, just because of the sheer expense of media. So, we're finally becoming a bit more of a mature market like Europe and North America – we can't talk to everybody because you can't afford it. You have to be more deliberate with who your profitable customers are.”

That reality has led chief marketers into a “period of consolidation”, where they’re looking to optimise what they’ve got “rather than just creating the next thing”, meaning they need to “better leverage their sponsorships” and squeeze every last drop out of their brand and performance media.  

Hence consulting firms and some agencies in recent years swooping in with business transformation, touting the ability to do “bigger” and “more complicated things” that are “largely oriented around technology”.

But Howatson thinks that trend has now also shifted as resource constraints lead marketers bring more technology projects in-house or consolidate with fewer, bigger partners – mirroring what has happened with production over the last decade.

“When I started my career, 20 to 25 per cent of the agency's headcount would be in a production role,” Howatson explains.

Now with in-housing and outsourcing to behemoths like WPP’s Hogarth and Publicis' Prodigious, there’s no longer a need for production capabilities in house – of 135 of H+C’s people, he says only two work in a finished art capacity.  

Eyes on the pies

With the bulk of agencies’ hands-on work being slowly stripped away by in-housing, outsourcing, and now AI automation, traditional agency revenue models are under severe pressure.

“The same job now, even if it has the same-ish budget, the agency takes a smaller share of that money than it ever has before,” says Howatson.

With advertising’s piece of the pie shrinking, his solution is to grab more slices, which inevitably means that agencies “need to be able to do more things” than they traditionally have, hence setting up Howatson+Company to work end to end.

It’s the model he thinks is “most relevant for clients” as it helps to “solve more of their problems”. Plus, it means relationships tend to be longer-term.

“You become more valuable, and you ultimately take a greater share of the marketer’s advertising budget.

Reviews: Project pressure

The upshot of crunched budgets, resources and chronic flux across pretty much all industries is accelerating a shift to project work over retainers – already prevalent where brands are in-housing, offshoring and automating marketing services.

“There are some bigger, retained things, but I think a lot of clients who were retained are now moving to projects,” said Howatson, piling further pressure on agency models.

“It’s well documented that you don't really make back the cost of winning the new business until year two. If you've only got a project, there's a real risk there,” he warned.

As to what’s driving current pitching volumes, Howatson disagreed with some market sentiment that suggests agencies are under-delivering – it's just that market requirements have moved on.

“If an agency can only do advertising, and that's not the answer to the client’s question, then all of a sudden there's going to be conflict there around the agency's perceived service delivery," per Howatson.

“That's why an integrated model is effective, because if the client says this is my problem, the answer could be many things – rather than just one thing.”

Which is precisely why Akkomplice came to Howatson – and why there may yet be more M&A across the piste.