There was a big splash in the brand deployment/premedia industry last week as the two largest players agreed to join forces. SGS & Co. announced that it had agreed to acquire the SGK business from Matthews International, effectively creating a near monopoly if the deal makes it through regulatory review.
There was a big splash in the brand deployment/premedia industry last week as the two largest players agreed to join forces. SGS & Co. announced that it had agreed to acquire the SGK business from Matthews International, effectively creating a near monopoly if the deal makes it through regulatory review.
The creation of this billion-dollar powerhouse certainly sent shockwaves through the industry, but what does it really mean? Will the industry benefit from the development of new technology and operating models that lead to lower costs and better outcomes, or will reduced competition lead to stagnancy and increased prices?
Both companies expect significant efficiency gains through this combination, but what is the incentive to reinvest these savings to drive innovation and better client outcomes if it doesn’t drive growth? It would seem unlikely they could become an even bigger monopoly regardless of what they do, in fact they may actually lose volume as clients who previously leveraged both parties as part of a multi-supplier strategy look elsewhere to do so. Further, there will be clients that simply won’t want to do business with the new company if their primary competition does as well, especially in the creative/strategy space. What seems more likely is for them to bank the savings and use the monopolistic power to take pricing up in the medium term. In other words, the combined entity may actually shrink from a volume perspective, but higher prices and greater efficiencies may more than make-up for this. Higher prices for the same output is generally the problem with monopolies and why the federal government has antitrust legislation in the first place.
Many have heralded this as the beginning of an AI revolution, whether within the new entity or elsewhere. However, even if more AI is introduced into the process, the story is not that simple. As complex and multifaceted as this industry is, it could benefit from a multitude of AI infusions rather than just one broad based AI tool, there is no magic bullet. I’m not sure any private equity firm has the patience to wait for a significant AI investment to pay off, and the new company leadership may be too distracted with integration to give it the attention it needs. Amid the current AI revolution, I expect that software companies like ESKO, Hybrid, and Adobe, rather than service providers will be the ones leading the AI development charge. For the sake of clients, it’s essential that the right resources are aligned with the right priorities: leave software development to the software companies and service to the service companies.
Finally, even with the introduction of brilliant AI tools, they will not replace a highly skilled workforce that is focused on serving clients. AI tools are, after all, just that—tools designed to help people do more with less. To make these tools successful, you need human expertise to provide the right inputs, guide AI outputs, and ensure that the process stays client and brand centric. The importance of a team that actively communicates with and serves clients cannot be overstated. It’s this human touch—the ability to understand client needs, adapt quickly, and build relationships—that ultimately drives long-term success.
As I consider the new company my biggest question isn’t just about what technology they will develop; it’s about how they will maintain a culture that prioritizes people. Companies that thrive in this industry are often those that nurture a strong culture, one that supports the development and retention of talent dedicated to delivering exceptional service. This is not an easy task, especially in a large organization with tens of thousands of employees. It’s even more challenging when cost-saving measures (such as layoffs) are in play.
Time will tell what happens in this evolving landscape. While the deal will likely drive value for the institutional owners, whether or not it will drive value for CPGs remains uncertain. Over time, innovation will continue to shape the industry, but we must not underestimate the power of a motivated and engaged workforce. Companies that focus on people, culture, and long-term relationships will always stand out, no matter how technology evolves.