Sectors: Corporate

Publicis ends 2024 on a high as it becomes the largest holding company in the world for the first time in its history. Green Square’s Tony Walford analyzes why 2024 has been fantastique for Arthur Sadoun and his team. Every year Publicis’ inimitable CEO Arthur Sadoun puts out a pre-Christmas short film to all staff thanking them for their global contribution called the “Wishes”. It’s quite something, and 2023 saw each of its 100,000 staff being sent a personal video created in AI with Arthur featuring his digital twin. Yesterday saw the release of the 2024 “Wishes” in which Snoop Dogg, or “Le Snoop” as he rebrands himself in the piece, announces Publicis as global Top Dog. The end of this year is very likely to see Publicis as the largest agency network in the world, with its €13.9bn revenue forecast edging ahead of WPP, which has worn the global revenue crown for the last couple of decades. The film is very amusing. The French love Snoop, so this is a smart choice particularly on the back of the Olympics, and features Sadoun unsuccessfully trying to do the C-Walk, ending with a cameo of former CEO and industry legend, Maurice Levy, on a balcony showing everyone how it should actually be done. Sadoun is a very charismatic leader, as was Levy before him, and his enthusiasm is always a joy to watch (even in boring old investor presentations). But putting that aside, how did Publicis achieve this lofty height historically dominated by WPP for so long? The first thing that sprung to mind was a piece I wrote in a coffee bar in Amsterdam back in 2018 (the morning after giving an evening M&A seminar for The Drum) about how Publicis was leading the charge by simplifying its offer around the “Power of One”. It’s funny how specific moments and places in time trigger a memory and, given where I wrote it (which was after a very late night with The Drum team), I was a bit worried how it would read when I went back to it today! It finishes with the line “Power of One seems to be not just another vacuous corporate restructuring exercise, rather a genuine attempt to create a new model that will see the whole group face its clients in a very different way going forward”. Fast-forward six years (me with a lot less hair, but Arthur only shifting from black to grey), and it’s clear this focus has paid enormous dividends. Don’t get me wrong; all the networks have embraced the need to change how they operate, with Mark Read at WPP being particularly voracious in merging the biggest agencies in that group, but Publicis was at the forefront of this paradigm shift. However, it’s one thing to talk about the Power of One, and another to deliver it. And is this why revenues have grown so much? M&A has actually played a major part, with Publicis making several very large strategic acquisitions to strengthen its position in key areas. A significant moment was the $4.4bn acquisition of Epsilon in 2019, bringing the group valuable consumer data and AI capabilities which have become a fundamental part of Publicis’s offer. This sizable deal followed its bold $3.7bn acquisition of Sapient in 2015, which it merged with Razorfish (remember that?), to create Publicis Sapient and kickstart Levy and Sadoun’s “Power of One” strategy. While this year has been relatively quiet for holding company M&A, with PE-backed outfits and the challenger group Stagwell being more active, 2024 saw Publicis make two further significant moves. The first was its acquisition of Influential, the largest global influencer marketing company by revenue, giving it access to over 3 million creators and 90% of global influencers with more than 1 million followers. Publicis immediately started integrating its own data with Influential’s platform to offer more targeted and effective influencer marketing solutions with its press release stating “By combining our Epsilon data, which allow us to see 2.3 billion people around the world, with connected TV, commerce, and now creators, we can enable our clients to truly know and understand their customers and prospects, and engage with them on a one-to-one basis, wherever they are, both online and offline”. The second was the acquisition of Mars United, the world’s biggest independent commerce marketing agency. Retail media is currently one of the hottest areas in marketing, with Next15 lauding its retail specialist SMG (which I’m proud to say was a Green Square deal), as a bit of a savior in what has otherwise been a very difficult year for that group (but that’s another story). Publicis’s acquisition of Mars in September completed the holy trinity of data, targeting and effective retail media deployment for Publicis, and further cemented the Power of One philosophy. From the press release: “The combined forces of Publicis Groupe and Mars will allow clients to influence the complete commerce journey for billions of global Shoppers, through an offering that begins with the industry’s deepest and richest database of consumer & shopper behavior and ends at the digital and physical shelves of the world’s leading online and offline retailers.” Thus, Publicis’ rise to become the world’s biggest agency group by revenue has not been entirely organic but facilitated by some very substantial acquisitions. That said, Publicis has not engaged in acquisitions simply for the sake of size, it only made a handful in 2024, and they were smart. Sadoun has absolutely stuck to his strategy of bringing a single point of focus for all Publicis’ clients’ needs and, given Influential and Mars only happened in the second half of this year, their further integration in 2025 should bring the group even more global blue-chip client opportunities. This is the first time a French agency group will be the world’s largest. France is currently suffering significant economic and political turmoil, and I wouldn’t be surprised if Emmanuel Macron hasn’t already called Sadoun to thank him for bringing this glimmer of Christmas light! Looking forward to 2025, Publicis’ holistic offering, scale and clear positioning put it alongside the highly acquisitive Stagwell and the soon-to-be-decoupled and separately listed Havas as the most interesting groups to watch next year. Read more

The numbers were looking good for the agency network halfway through 2024, but has it managed to keep momentum moving in the right direction? Our number-cruncher, Barry Dudley of Green Square, suggests not. At the half-year point, I sensed that momentum may be picking up at Dentsu. Unfortunately, the Q3 results don’t seem to show this, with just 0.3% organic growth in net revenue and the guidance for the full year being moved down to “circa 0%” from 1%. But this does mean two quarters of (marginal) growth, following declines in the previous five quarters, so it’s at least momentum in the right direction. Japan, Dentsu’s biggest market by far, saw “solid” organic growth (2.8%) driven by double-digit growth in internet media. EMEA was up a healthy 6.9%, but this was largely down to the comparative quarter in 2023 being hit by a “one-off negative impact.” Americas, its second biggest market, was down 3.1% and “the situation in APAC remains severe,” declining 11.6%, with ‘difficult market conditions” in Australia a key factor. Hiroshi Igarashi, president and global CEO at Dentsu, said: “We have seen notable global new wins in the quarter, higher pitch win rates in Japan and the steady accumulation of net wins in the media business in international markets, which is the result of our continued effort to deliver Integrated Growth Solutions. These are examples that prove the implementation of One Dentsu is affecting positive changes within our organization. “Over the last nine months, we have made internal investments around data and technology, people and culture and business operations to accelerate our competitiveness.” Undoubtedly, some of that technology investment would have been in AI, although AI was not referenced once in the whole of the press release and only three times in the 52 page Earnings Presentation. But I did find this comment: “Creative won a significant global pitch in Q3 where we were able to demonstrate synergies with Tag, especially on creativity and efficiency.” Synergies and creativity are not traditionally the best of bedfellows, but perhaps it’s that pesky AI at work… Dentsu’s next Mid-Term Management Plan is set to be announced in February 2025 and it says that “under One Dentsu [it] will achieve growth that outperforms the global market by 2027” and “the plan will cover specific business strategies to recover competitiveness.” Sounds like one hell of a plan. Looking forward to reading that. Read more

One is in high spirits thanks to accelerating growth. The other has seen its share price tumble to a record low. As Stagwell and S4 post their Q3 results, Green Square’s Barry Dudley examines the reasons behind their starkly different performance in his regular holding co results round-up. Off the back of a 13.5% decline in net revenues in Q2 comes a like-for-like drop of 12.6% in Q3 for S4. No wonder Sir Martin Sorrell, S4’s executive chairman, had a somewhat dour demeanor during his firm’s earnings call. Global macroeconomic factors, including high interest rates, were referenced. But S4’s fundamental challenge continues to be its dependence on technology clients with one client in particular pulling down its results. The outlook has been revised down to a low double-digit reduction in full-year year like-for-like net revenue – so down at least 10% against 2023, when put in plain English. Which is going to lead to a “significant reduction in the number of Monks.” Staff, that is. The Content division, S4’s largest, saw a drop of 9.1% in net revenues for the quarter. Data & Digital Media was flat, but Technology Services was down a thumping 42.1%. And by geography: Americas were down 14.5%, APAC down 21.2%, with EMEA up slightly by 1.3%. Scott Spirit, S4’s chief growth officer, talked through its “addressable market,” which I thought would add further color to why it is finding trading so tough… in 2024 ‘digital media spend’ is forecast to be up 8.7% (7.8% in 2023) and ‘ad revenue growth at the 5 main platforms’ is forecast to be up 15% (10% in 2023). Sounds like a pretty good addressable market to me! However, ‘Digital Transformation Service’ is projected to decline by 0.25% (compared with 5.2% growth in 2023). But the most fascinating numbers were in a table that showed the number of clients S4 had in four different size bandings for the year 2024 and for the same period in 2023. In 2023, there were 12 clients with revenues of more than £10m and 12 clients with revenues of between £5m and £10m – in 2024 the respective number of clients were nine and seven. As I’m pretty sure S4 hasn’t lost (m)any major clients, so that means there has been some sizeable cuts in spending. What is possibly more troubling is the picture at the other end of the scale: clients with revenues of between £0.1m and £1m have increased from 349 in 2023 to 390 in 2024. In tricky times, it is not unusual for businesses to take on smaller clients, or smaller projects than they might normally wish to in order to fill a sales gap. Sometimes this can also be the wrong type of work. There may simply be no choice: bills have to be paid. But this can create a vicious cycle where your resources are used inefficiently across too many things and then you don’t have the capacity or the right mindset to start working on converting the next £10m+ whopper. Spirit went on to say: “On the positive side our progress in new business, particularly driven by interest in our Monks.Flow AI offering has helped drive an increase in clients at the top of the funnel which we hope to develop into larger relationships in 2025”. Fingers crossed. Then there was Stagwell, with its waxed surfboard. If S4 has the challenge of its dependency (44% of revenues) on the Technology sector, Stagwell has the upside of a strong Advocacy practice which benefited from a US election that supposedly saw a combined cost of $3.5bn around the Trump and Harris campaigns. Stagwell’s Q3 organic net revenue growth was 7.6%, or 4.6% if you exclude advocacy work. All of its ‘principal capabilities’ saw organic growth with Stagwell Marketing Cloud Group up 23.3% and Digital Transformation up 14.5% – the latter a particularly stark contrast to S4’s fortunes. If the US, organic net revenue growth of 10.8% was helped by the election. I suspect the UK’s decline of 10.1% was due in part to clients holding back spending whilst they waited to see the outcome of the recent budget. ‘Other’ was down 0.9%. Mark Penn, Stagwell’s chairman and CEO, said: “The third quarter results show us returning to industry-leading growth. We believe we are poised to deliver double-digit growth in the fourth quarter and will be well-positioned for 2025. We are reaffirming our full-year guidance today after a more moderated start to the year. We are accelerating into the back half. Our new business momentum continued as we won our single largest deal to date with a global tech company and have expanded our work with major tech companies this quarter by 30%. Our tech company relationships have come back strongly. We posted a net new business figure of $101m, bringing our LTM new business to $345m, another company record. This was driven by a new business pipeline, and increasingly larger global pitches”. One of the share prices dropped 15.86% during the trading day of the announcement, the other jumped 2.95% – I’ll leave you to guess which was which. But I know which chairman I would rather have had a cup of tea with after these announcements…

The UK has been waiting 14 years for a Labour budget and, as expected, a rise in employers’ national insurance has stolen many of the headlines, but there was much more. Green Square’s Tony Walford asks if agency leaders are in for a bumpy ride in 2025 as a result. This afternoon, a client compared the budget to one of those fairground ghost trains where you’re promised an absolute bedlam of horrors but, once it starts rattling along the track, it’s all a bit lame. I have to say she was bang on the money, but there were still some nasty twists. The first thing that’s quite irritating is that in scaring folks by largely keeping schtum on what would happen regarding capital gains tax (CGT) and inheritance tax (IHT), while promising no rises in income tax, corporation tax and VAT, Rachel Reeves led a lot of business owners and individuals to take major life decisions in the short term based on conjecture. Last month, in a piece in The Drum, I countenanced against agency owners and shareholders taking a discount to close a sale pre-budget in case the hit to CGT wasn’t as bad as expected. It had been mooted that it could be aligned to income tax, so worst case 45%, but today’s hike from 20% to 24% for higher and top-rate taxpayers is right at the bottom end of expectations. Business asset disposal relief (formerly entrepreneurs relief), which gives qualifying business shareholders a reduced tax rate of 10% on the first £1m of gains, is being held until April 5, 2025, when it will rise to 14% and 18% in 2026. Those that sold quickly and at a chunky discount may rue the day, but I don’t write this with a smug ‘I told you so.’ The government fueling expectations of a Halloween horror-show budget with many being plunged into the depths of hellfire, when in reality it’s a few burnt marshmallows around the fan heater, is a very poor show. The lack of transparency was pitiful and the cynic in me would think it was done on purpose to drive the tax grab up between July’s election result and today’s budget through fear, with the huge time period between the two cementing this conspiracy theory further. The good news is we now know what the rates are and, as it’s not that bad, we don’t foresee a big impact on agency M&A or ongoing investment. Indeed, those qualifying shareholders in a sale process will still save £40,000 in CGT if they get it closed by April. Those in private equity firms that invest in the companies they fund personally will see a relatively modest rise of 4% in their CGT rates. – again, not ridiculously penal, and I’d like to think it won’t impact investment. The real kicker for all businesses however, and particularly smaller ones already struggling with staff costs, is the increase in employers’ NI and the reduction in the threshold from next April. Businesses currently pay employers’ national insurance of 13.8% on every employee’s salary once their salary exceeds £9,100. This is a direct cost of employment and the increase in employers’ NI to 15% (and threshold reduction to £5,000) will have a direct impact of at least 1.2% on the total salary bill of virtually all businesses that employ staff. There is some light for businesses that have four or fewer employees on the national minimum wage who will get an additional £5,000 relief, but this is unlikely to be of any comfort to the vast majority reading this piece. Staff costs are an agency’s biggest single expense line, with a key ratio being staff cost to revenue and the golden target being somewhere between 55% and 60%. Many agencies have been struggling to even get down to a ratio of 60% in recent times, particularly as salaries have gone up with the cost of living while clients have pushed back on fee increases. This additional levy is very unwelcome and if firms can’t pass the cost on to their clients, they will need to find savings in the form of reducing discretionary spend. This could include agencies revisiting their own marketing strategy, holding recruitment, cutting various internal budgets and, in the worst case, reducing headcount. On a macro view, clients will also be suffering the NI increases and the broader impact of higher staff costs and resulting lower profitability could lead to reductions in marketing budgets. These are often the first to be cut in tough times and last to be reinstated when things improve and will be a double-edged sword for all of us in the marketing industry. There were other changes, of course, but the employers’ NI twist in the ghost train track is the one with the biggest capability of spilling a lot of folk from the carriages. Let’s see how the upcoming impact pans out as we head towards the next tax year. Read more