Sectors: Corporate

After a thumping $1.38bn goodwill write-off, the Japanese holding company presented a frank three-year plan to rebuild its international business. Green Square partner Barry Dudley assesses its chances of success and what it means for Dentsu’s teams around the world. Much like IPG, Dentsu had a tough 2024 in terms of its general trading – organic net revenue fell 0.1%, having fallen 4.9% in 2023. Its operating margin was ahead of expectations, but at 14.8% I would call that pretty ordinary. Hiroshi Igarashi, president and global CEO, Dentsu, said: “The Group FY2024 results were in line with our November guidance with broadly flat organic revenues, and operating margins higher than expectations. We saw sequential quarterly improvement throughout the year, with strong performance in Japan. There were also some notable global new wins in the International business [everything outside Japan].” So, an OK picture. But Igarashi went on to say: “However, we have reported a significant goodwill impairment in the fourth quarter, reflecting a more conservative outlook in EMEA and the Americas. We believe that recognition of these uncertainties will contribute to a sounder balance sheet and a stronger platform upon which to implement the Mid-Term Management Plan announced today.” That goodwill impairment was a lumpy JPY 210.1bn relating to EMEA and the Americas – that’s an eye-watering $1.38bn. There were two headline reasons given: “…a higher discount rate than previously used based on recent market interest rates [going up], secondly conservative reflection of various risks in international businesses.” What sits behind all this? When a business is acquired, very simplistically, the difference between the net assets on its balance sheet and the actual price paid by the acquirer sits on the acquirer’s balance sheet as an intangible asset called goodwill. As most service-based businesses have few “hard assets” (buildings, machinery, IT and the like), the goodwill number is commonly a very big proportion of what is paid by the acquirer. From time to time, the acquirer must review this asset’s carrying value on the balance sheet – is it still worth what they paid for it and is the value still there? If the business is making losses and its future looks tricky then things get harder to justify and some or all of the value may have to be written off. Similarly, if the name of the asset acquired is disappearing, perhaps it is being merged into another business and taking that business’s name – again, is the value still there? I suspect there is a bit of both going on here. As you’d expect, there is a plan. An “MTMP” no less. Igarashi explained: “In our new Mid-Term Management Plan (MTMP), which will run through the years of FY2025 and FY2027, we plan to achieve organic growth of 4% and 16-17% in operating margin in FY2027. We will conduct a thorough review of our core business strengths, be more selective and focused on what we do, and adopt a differentiated strategy to meet our diversifying client needs. “While we will continue to invest in data and technology and our people and culture, we will also invest into areas where we can increase our media capabilities in our key markets. At the same time, we will reevaluate our underperforming businesses and rebuild our business structure. Our ultimate goal is to regain competitiveness and return to a growth trajectory.” I have commented before on the frankness that Dentsu management often use: “Our ultimate goal is to regain competitiveness.” Crikey! Its results were summarized as Japan “performed very well” and the international business was “challenged overall and we are taking this quite seriously.” Got it. And the solution to the seriousness: In 2025, year one of the MTMP, Dentsu will be “focusing on improving profitability through re-evaluating underperforming businesses and rebuilding our business foundation.” During the earnings call there was another piece of frankness from Igarashi when he said that Dentsu didn’t deliver the last MTMP which ended in 2024, which was built on M&A. The new MTMP to 2027 is all about organic growth, with M&A to be “carried out selectively in line with business performance recovery and under strengthened, disciplined management.” The theme continued with a slide saying: “Our position has become increasingly challenging in the face of intensifying competition”, which went on to conclude that Dentsu’s position is “Inferior in terms of network and resource scaling” with “insufficient technology investment.” Then came the inevitable cost reduction plans and the promise of “thoroughly eliminating inefficiencies.” The aim is to reach an operating cost reduction of up to JPY50bn (US$329m) in 2027. The first thing that was mentioned here was to “simplify operations by integrating the Tokyo and London headquarter functions” and then by “redefining the role of regional offices,” in addition to “implementing cost control measures in the markets.” Watch out senior regional management. And what of that pesky AI thing? It was mentioned once in the press release and that was referencing what others are doing in AI. Mentioned the same way in the investor presentation and then just once more within the cost savings: “Extensively automate with AI and systems.” I have a personal affinity to Dentsu which I won’t bore you with. There are many things that make it unique, but I’d say it has a pretty tough time ahead of it – hunkering down and being efficient will only get you so far… Read more

While all eyes are on its impending merger with Omnicom, IPG is still its own business – for now. Barry Dudley delves into its 2024 results to find out what to expect between now and the new holding company empire taking shape. Two weeks ago, we saw some strong 2024 annual results for Publicis and Omnicom with 5.8% and 5.2 % organic growth and 2025 organic growth guidance of 4% to 5% and 3.5% to 4.5% respectively (‘net revenue’ for Publicis, ‘revenue’ for Omnicom). Now we have IPG’s 2024 results and it has had a rather more bumpy ride. Philippe Krakowsky, CEO of IPG, said: “Today we are reporting an organic revenue increase of 20 basis points for the full year 2024, along with adjusted EBITA margin in-line with our forecast of 16.6%. Our strong margin result reflects continued effective operating discipline by our teams, notwithstanding the challenges of the past year. “Solid new business momentum in the fourth quarter and early 2025 will begin to come online later this year, though it will not offset sizable client losses incurred last year due largely to changes in the media trading environment. Factoring in those headwinds, and with the benefit of otherwise sound underlying performance, we are forecasting an organic decrease in revenue for the full year of 1% to 2%.” The “organic revenue increase of 20 basis points” is a somewhat flattering way of saying they grew by just 0.2%. Disappointing for everyone at IPG, there’s no doubt, but given the “sizable client losses incurred last year” I was expecting a much bleaker picture. During the earnings call, Krakowsky said: “…we were on the wrong side of the outcome in defending a number of very significant media accounts … the decisive factor on those largest decisions was principle media, and specifically the commercial terms enabled by principle media at scale.” One of those accounts being Amazon, which IPG had held for many years – WPP and Omnicom shared this prize. That alone would have been bad enough without losing other clients too. The reference to “principle media at scale” and a subsequent comment that “…a competitor was able to leverage its much greater size…” were telling. Even when you’re IPG’s size, you can still be muscled out of business by people even bigger. Scale and price won’t have been the only factors in those pitches, but they matter a lot more in a media pitch than, say, a creative one. But if the sale to Omnicom goes to plan, it will soon be the biggest dog in the neighborhood and will be able to count Amazon as a group client again. I expected profitability to take a hit as well. Rather impressively, IPG delivered an EBITA margin of 16.6% which was in line with forecast. And it has given guidance that it hopes to match this in 2025. Hats off to Krakowsky and CFO Ellen Johnson for marshaling the maths in among this melee of client losses, at the same time as having a coffee or two with Omnicom. And on the math subject, IPG talked through cost-saving and efficiency initiatives with “…in year savings of approximately $250m in 2025” of which there would be “very limited overlap” with the $750m synergy savings that Omnicom referenced could be delivered as a result of acquiring IPG. A shining light, as you might expect, came from Acxiom which “posted good growth for the full year … with four large new business wins across industry sectors”. And another thing that caught my eye was the statement that: “During the quarter, Golin committed to being the first fully AI integrated PR agency by the end of this year.” Can’t wait to see what “fully AI” means, sounds bloody brilliant and at the same time terrifying… But that’s just the world these days. Read more

As advertising’s leaders of the pack report similarly strong 2024 financials, Barry Dudley decodes their earnings calls and explains how their journeys will drastically diverge in 2025. Given its strong performance over the previous three quarters, it probably comes as no surprise to hear that Publicis continued that momentum in Q4. Indeed, it came in ahead of its own guidance. Arthur Sadoun, chairman and CEO, said: “Thanks to a very strong Q4, Publicis became the largest advertising company in the world in 2024. “We are ending the year in the number one position across the board, growing three times faster than our holding company peers, and five times faster than the IT consultancies. We delivered industry-high financial ratios while stepping up the pace of our investments in AI and talent. Once again, we topped the charts in new business rankings. “But even more importantly, we are accelerating on our status as a Category of One thanks to our unmatched 1st-party data capabilities, our connected media ecosystem, our creative firepower, and our 25,000 engineers, brought together through the Power of One. This makes us confident in significantly outperforming the industry in 2025 for the sixth year in a row.” The key numbers for the year to December 31, 2024: net revenue of €14bn, 5.8% organic net revenue growth, with operating profit of $2.5bn at a margin of 18%. That margin is impressive. Very impressive in fact, given its sheer scale, levels of infrastructure, the investments it’s making in its people, data, AI, technology, the list goes on. So, for those young, fleet-of-foot, dynamic independents out there an 18% margin must be a walk in the park to achieve – are you? Sadoun went on to set out what he sees as the unique competitive advantages that have put Publicis in the “number one” spot:

• “Leadership in first-party and proprietary data”“Thanks to AI we connect this data to our entire media ecosystem and intelligent creativity”
• “Thanks to AI we connect this data to our entire media ecosystem and intelligent creativity”
• “We have 25,000 engineers and consultants … to make sure our clients can integrate those capabilities into their own environments and transform their business model”
• “We operate as an efficient and flexible single platform organization thanks to the Power of One, Marcel and our Country Model to make all of this data and technology seamlessly accessible to all off our clients and teams”

A pretty powerful framework. if you head up to 30,000 feet, what is your equivalent articulation of your competitive advantage(s)? Part of what has driven Publicis, for decades now, has been chasing down the biggest in the pack – WPP. Having an enemy, a Goliath to your David, is very commonly what drives people, drives businesses. This has been the environment that Publicis has been playing within, evolving, looking for new angles, markets, advantages. Now it is the Goliath, or perhaps it’s Leo the Lion. So what’s the goal now? Well, assuming that regulatory hurdles don’t trip up the Omnicom takeover of Interpublic, Publicis shifts back to number two (in terms of revenues). Sadoun is already relishing the hunt for the new Goliath – “this puts Publicis back into the challenger position, which is where we like to be.” But he’s not rushing around trying to find a big lump to quickly fatten the numbers. Instead, Publicis is pointing to its €800m to €900m acquisition budget for ‘bolt ons’. This means buying strategically to enhance what it already has, to bolt things on to existing operations in some very specific areas: first-party data, production, digital media, technology – quite a spectrum. And Sadoun isn’t about to put a banana skin in front of himself at the start of the year – his outlook is for 4% to 5% organic net revenue growth, which is slightly down on 2024. I’d bet on Publicis beating this range, but this old adage still works – under-promise, over-deliver! Later the same day Omnicom’s results landed. It also had a strong year with $15.7bn of revenues, with organic growth of 5.2% over 2023 (the Publicis numbers above were on net revenue, so not quite apples and apples), and an EBITA margin of 15.5% (again not quite a comparison to Publicis – EBITA v operating margin). And the guidance for 2025 sounded familiar at 3.5% to 4.5% organic growth – under-promise, over-deliver. John Wren, chairman and CEO, said: “From this position of strength, we are incredibly well prepared for and excited about the complementary combination of businesses and cultures with our proposed acquisition of Interpublic. Together, clients and employees will benefit from expanded products to deliver superior creativity, innovation and effectiveness. We will also bring together unparalleled data assets to market, fueling leading creative, produced at scale, and activated by the world’s top-ranked media practice to drive measurable sales. We see significant upside potential through expected revenue and cost synergies that can drive growth beyond what Omnicom was delivering alone.” There were winners and losers across the different service lines and also by geography, but for me there were more interesting things that emerged. During the results webcast, Wren unsurprisingly spent most of his time on the Interpublic takeover, a big part of which was around the $750m of annual cost synergies that it is expecting to achieve if the deal goes through. And he sees more synergies on top of these through revenue opportunities, leveraging near and offshore capabilities and utilizing automation, including AI. Wren was keen to make clear that headcount savings “will not impact employees dedicated to servicing our clients and generating revenues.” I can imagine quite a few people trying to work out whether they fit into this definition… And where there is duplication or for people who aren’t ‘dedicated to servicing our clients and generating revenues,’ they will choose “the best individuals across the organization, irrespective of their current affiliation.” These are going to be very uncertain times for people, which will be one of the biggest challenges in the coming months. Shareholder approval is set for March 18, but the deal won’t close until the second half of 2025. Until then, Wren said that they will “continue to operate as independent businesses.” This is one hell of a lot of internal work, spreadsheets, integration planning, legal loopholes to crack. All while Publicis is practicing with its sling to take aim at the coming Goliath. Read more

From Getty acquiring Shutterstock to Bauer buying Clear Channel and Publicis bringing together Leo Burnett Global and Publicis Worldwide, it’s been a busy start to the year for M&A. Green Square’s Tony Walford tells us what to expect in the weeks and months ahead. What a start to 2025! Trump back in, economic and political turmoil in the UK, France and Germany and the Middle East (but hopefully now resolved) and Russia-Ukraine continuing to present challenges, albeit Trump reckons he can fix the latter in a stroke. Given this background, it’s understandable to anticipate a slowdown in investment and M&A whilst people wait to see what the US administration will bring and also how the UK economy pans out. That said, hot on the heels of the Omnicom-IPG announcement at the very back end of 2024, this year started with a couple of significant acquisitions. Getty is acquiring Shutterstock in a merger that will value the combined company at $3.7bn and Bauer is buying Clear Channel Europe-North for $625m. Given current global macroeconomic uncertainty, the question is whether the nature of these three deals points to a potential trend in M&A for the coming year. While trying to predict this year’s theme so early on would only set me up to look a fool (no comments please), there is a common thread across these three transactions, which is consolidation. And as I write, the news of Leo Burnett and Publicis Worldwide coming together under the name Leo is reverberating – it’s not M&A, but it’s certainly consolidation. There’s been plenty of press comment around Omnicom-IPG and its proposed restructuring, so there’s no need to repeat that here. That’s consolidation in its purest form in an increasingly competitive and changing market… two legacy global networks huddling together to keep warm, cutting costs and aiming to knock Publicis off its recently claimed position as ‘Top Dog’ (while the Top Dog itself begins internal huddling together under Leo). So, let’s concentrate on the Getty and Bauer deals. First, Getty-Shutterstock is about controlling more of an already declining image market, protecting its position through cutting costs (estimated annual savings are up to $200m after three years) and facing up to the threat that AI image generation brings. The combined entity will control nearly half of the global image market with a massive library of approximately one billion stock images, videos, GIFs and the like. Image prices are being driven down, photographers are (sadly) being paid less and the market has become commoditised. On the face of it, this replicates the Kwik-Save store mentality of the 1980s, “pile it high and sell it cheap,” but generative AI tools, such as Midjourney and OpenAI’s Dall-E, are major threats to the traditional image market. Getty is not only trying to consolidate its position as the place to go by offering a broader and deeper content library, but wants to outpace competitors by developing its own AI-powered tools for image search, editing and generation. It hopes that its vast, merged combined repository will provide the biggest pool in the world to train its machine learning tools on. In comparison, while Bauer-Clear Channel is also about consolidating across media platforms, it’s not simply about size, market share and defensiveness. Bauer has a suite of media assets in magazines, including Grazia and Heat, and radio with Absolute, Magic and Kiss to name just a few. By adding out-of-home it significantly extends its offering to advertisers and the opportunity to seamlessly sell media across a broader set of formats. It’s interesting that in buying the North European elements of Clear Channel, Bauer has stuck to its local markets – those which it understands. It already operates in 7 of the 12 markets Clear Channel brings, so there’s a degree of risk mitigation, which brings me on to another point – trust. Trust in news media is being eroded. There’s a constant onslaught of political influence across the various news platforms, some much more biased than others. Not to mention Elon Musk using his own platform, X, to have a pop at the UK’s Labour government as well as Nigel Farage (who must be particularly sore, given his prior constant praise for the guy). With polar-opposite opinions and spins being put on our ‘news’, and out-of-context comments and fake imagery being broadcast globally, people no longer know what to believe. The cancel culture still exists, but people are becoming a bit more suspicious of the information that’s being doled out and less knee-jerky before making a decision. And if the public is trusting news media less and less, how does this translate into the trust people place in those brands that advertise on it? One of our Green Square client alumni, Jack Horner (formerly of FRUKT, which Green Square sold to IPG, and now a founder of local media specialist, Nearfield), suggests local media news is considered far more authentic. While it tends to be “local news for local people,” the proximity of the matters being reported means it’s far more likely that fake news will be called out and local news platforms are hugely at risk should they lose trust. When something major happens locally, for example the dreadful fires in California, I can’t imagine residents would choose CNN or Fox over the Los Angeles Times to get a more detailed picture of what is happening. In turn, this trust in local media can extend to advertisers. We all know brands must earn trust, but being seen in a place where authenticity already exists is a good start. It could be deemed smart to shift a more sizable element of advertising and events budgets to regional media outlets, allowing brands to connect and engage with local communities, in turn garnering more trust, loyalty and ultimately becoming part of their ecosystem. Out-of-home, or local radio, seem pretty smart places to be. Another fear for brands is one where their adverts appear next to inappropriate or extreme content. In a world where media trust is diminishing, has this risk shifted to brands potentially being seen as inauthentic depending on their media placement? Again, out-of-home, or local radio seem pretty smart places to be… As an aside, the LA Times is owned by billionaire entrepreneur Patrick Soon-Shiong, who also owns the San Diego Union Tribune and other California news outlets. He acquired them with the specific intention of bringing more “fair and balanced” news, representing all views and, in late 2024, he controversially prevented the paper endorsing a single election candidate (in this case, Kamala Harris). He also fired the entire board in his ongoing quest to “restore balance.” Whichever way you look at it, given the size of the readership, this is local media at scale. Coming back to the outlook for 2025, while in tricky times we tend to see consolidation, my wish-list for this year includes it being about restoring trust, particularly in media content. The purpose, ESG and diversity agendas have rightly had most prominence in recent times, but what use is purpose without trust? It will be a shame if this year ends up being mostly about consolidation in an increasingly unstable world. M&A should be all about gaining complementary skills and services, which improve and extend client offerings, not just offering more of the same. That’s boring. Bigger isn’t better. Better is better, and the best acquisitions are those that augment people’s lives in some way. I’d like to think as we specifically look toward content that shapes so much of our day-to-day decision making, trust and authenticity will be higher on the agenda when looking at M&A. Read more