Sectors: Creative, Media & Technology

As IPG’s Michael Roth steps down from the holding company, Barry Dudley examines what the departure means for the group, and the industry at large. It’s the end of an era – no, it really is. Michael Roth, 74, is retiring from what we used to call ’the ad business.’ Roth, who stepped down as chairman and chief executive of the Interpublic Group (IPG) at the start of this year, last week announced that he will retire from advertising on December 31 after serving one year as executive chairman of the holding company giant. “My time as chairman and chief executive officer of IPG has been a tremendous privilege,” he said in his departing statement. “I am most proud of the work we have done to help shine a light on equity and inclusion, as well as being a value and purpose-driven enterprise. Operationally, we have evolved to meet the needs of an industry that is not only creative, but also increasingly about digital and data. Philippe [Krakowsky, his successor as chief executive officer] has been key to the efforts to move the company forward on all these fronts, working with me and the board to build a contemporary organisation that delivers high-value services for marketers. Our clients, people and shareholders are in very good hands going forward.” Sir Martin Sorrell, Maurice Levy and Roth were a trio of players that dominated the global marcomms industry for almost three decades. They were different from the ad titans of the post-war era, the David Ogilvys and Bill Bernbachs – they weren’t creative types, they were unashamed money men. Along with John Wren of Omnicom, they built up big holding company empires, mostly through acquisition (sometimes aggressive too) and consolidation. Now, in an era dominated by a pandemic and ongoing digital disruption, the holding company model may seem hopelessly quaint and outdated, but at the turn of the century it seemed the best way to meet the demands of shareholders for profits; and of clients, whose marketing needs were becoming increasingly global. Big was beautiful, and as it turned out, pretty profitable too. Many in the creative community weren’t happy with Roth (as they weren’t with Sorrell or Wren or Levy), but shareholders and clients were. Business was good. Roth wasn’t an ad industry guy – he was a certified public accountant who was an alumnus of New York University Law School and Boston University Law School. Before joining IPG, he was chairman and chief executive of Mony, a financial services holding company. Under Roth’s leadership, Mony diversified its business mix, broadened its distribution channels and enhanced its ability to compete in a changing financial services marketplace ​– a lot of parallels to what was required of him when he took over the leadership of IPG from David Bell back in 2005. He led the agency network, which owns the likes of McCann (the venerable McCann-Erickson was the foundation on which the IPG empire was built), FCB, Golin, RGA, MullenLowe, Weber Shandwick and many others, and created one of the so-called ‘Big Four‘ holding groups (along with Omnicom, WPP and Publicis). Over the years of Roth’s tenure, IPG was subject to many a rumor, and much criticism. Many observers thought it was the runt of the ‘Big Four‘ litter, and thus ripe for a takeover by one of its rivals; while others – including some activist shareholders – thought its parts were worth more than the sum, believing it should be broken up and sold off to realise its true value. But through it all, Roth stuck to his principles – for 15 years all told. He leaves it in arguably far better shape than he found it. It’s a measure of the man’s achievement that the tributes paid to him over the past few days have been so fulsome and affectionate. Rivals as well as those he worked with and managed have been among the cheerleaders. Long-time adversary Sir Martin, now chair of S4 Capital, said: “Michael clearly did an outstanding job in leading IPG out of a difficult position at the beginning of the new millennium and setting it in a new direction. He increased its growth rate, both top and bottom line, and now it has almost caught up with the Big Three in terms of market capitalisation. The boy done well.” Indeed. Another part of his legacy was an eye for a good buy – and for taking the long-term view. A great example of this came in 2018 when IPG bought the database marketing and consumer insight business Acxiom for $2.3bn, its biggest-ever acquisition. The deal raised a few eyebrows, despite the interest in data at the time; the price paid came in for particular criticism. But three years on it was put into a favorable perspective by Publicis’s acquisition of Epsilon for $4bn. Initially IPG focused on using Acxiom’s data capabilities across its media agencies, and it took a while to figure out how best to use Acxiom across the group’s agency offerings. But Roth and his team managed to integrate their new purchase into the group, and it has contributed to profits ever since – and significantly, helped win new clients (as R/GA did years earlier when IPG bought Bob Greenberg’s innovative New York digital agency). “Acxiom people and capabilities have played an important part in some significant new business wins,” Krakowsky said in 2019. “When it comes to data privacy, and the ways in which companies need to approach data in an age of increased scrutiny and regulation, we can also now bring [an] expertise and credibility that would have been more challenging without a company with Acxiom’s pedigree.” So commercially there are a lot of ticks, but isn’t that what you’d expect of an accountant/lawyer? Definitely. What you probably wouldn’t have expected were the tributes to the value he placed on his people. Mark Read, WPP chief executive, commented: “Michael has always been a champion of talent as the bedrock of great agency brands. He has also been a leader in pushing for greater diversity in our industry, to the benefit of all.” This rings so true with what we have witnessed with our clients and from many conversations over the last six months – if a business has strong leadership, is capable of navigating change and has always nurtured a deep culture across all of its people, it will have come out of the pandemic lows on the front foot. And diversity has clearly been an agenda item for Roth for some time – although there’s still plenty to be done on this front, it’s not a catching up housekeeping exercise. All in all, I’d say that’s some legacy. Read more  

Much has been made in the media over the past few weeks of shortages – shortages of fuel, in the shops, of computer chips, CO2 gas, construction materials, shipping containers, of certain drugs, of lorry drivers, hospitality staff and care home workers… in short, the world is, for the time being at least, short of just about everything. The reasons for these shortages are varied and complex, and outside the scope of this article; however, most are solvable in one way or another. But one shortage isn’t so  easily solvable. Events of the past few weeks have woken everyone up – especially here in the UK, where Brexit has exacerbated the issue – to the fact that there’s a new type of conflict going on: a global war for talent. Post-Covid, in the developed world, with its ageing populations, labour shortages are developing in all manner of sectors. The pandemic has obviously reduced mobility and put pressure on certain supply chains. But more than this, the past 18 months or so have acted as a kind of giant social petri dish, an experiment that would have been impossible in any other circumstance: offices have been shut and everyone’s been forced to work remotely or from home – if not permanently, at least long enough for everyone, employees and employers alike, to get a taste of what a remote working world might be like. And what the working world has seen has terrified some people, and energised others. And, it’s fair to say, started a huge shift in power, from bosses to employees. In the UK, job vacancies soared to an all-time high in July, with available posts surpassing one million for the first time. In May, jobs site Reed.co.uk had its highest number of monthly postings since 2008. In August another 250,000 roles went live on the site. Simon Wingate, the company’s managing director, told Wired magazine that opportunities advertising remote work have grown more than four-fold compared to before the pandemic. A survey by the HR software consultancy Person in July found that 41% of those surveyed in the UK were “seriously considering” changing jobs or professions. Over in the US, four million people quit their jobs in April – a 20-year high – followed by a record ten million jobs being available by the end of June. A Microsoft study has found that 41% of the global workforce is considering leaving their employer this year. Psychologically, the pandemic has wreaked havoc – depression, loneliness and anxiety are all on the rise; but it has also allowed people the space to take stock and to consider the quality of their lives – and there’s plenty of evidence emerging that people (at least those we might call white-collar workers) are coming to the conclusion that commuting to an office isn’t for them. If you can, why not work from home, spend more time with the family and have more time for yourself and your hobbies and interests? In the marcomms world, which puts a premium on youth and energy as well as creativity, recruitment and the retention of talent is going to be a key front in the global war. More than most industries, marketing and advertising relies on collaboration, face-to-face working and some sort of office culture. The pandemic and lockdown have proved that agencies can still work remotely, but anecdotal evidence has also demonstrated that many agency employees miss the buzz of the office: their work partners and collaborators, chatting with colleagues, the excitement of a pitch or a brainstorm… but even here, there is a feeling that employees are, if not resigning en masse, starting to demand more – more flexibility, a less rigid calendar, a better work-life balance. Perhaps more money too. But in marcomms, as in banking, tech or consultancy, money perhaps isn’t the issue. While wages for starters might be low, generally they’re better than average, and conditions may be the front on which the war will be fought (and won). This may cause a change in agency culture: real freedom and flexibility, a sense of being valued as an employee, opportunities to contribute, better training and prospects for promotion and advancement… in the new world, these will all win out over free Friday drinks, the chance to dress casually, pool tables, subsidised bars and all that traditional ad agency paraphernalia. On the subject of training, this is something many agencies have been poor at – taking in people and training them up if there is someone available who can hit the ground running. Given the current talent shortage, yet a glut of unemployed grads, it would pay agencies well to review their recruitment and training strategy. All this matters because the advertising jobs market is heating up as client demand and marketing spend are bouncing back, in some cases above pre-pandemic levels, which is leading to higher employee churn and pushing up salary inflation. Mark Read, CEO of WPP, said at the company’s Q2 results recently that the strength of the recovery has “surprised many people” and this year’s staff bonus pool should be two and a half times 2020 levels. And Statesidse, John Wren, chief executive of Omnicom, warned: “We are seeing some pressure on our staff costs, particularly in the US as the labour markets remain tight.” Much-reported anecdotal evidence of candidates receiving multiple competing job offers also points to a hot recruitment market – in contrast to a year ago during the first lockdown (during which some agencies panicked and made savage staff cuts – 6,000 each in the case of Omnicom, WPP and Dentsu). But conditions improved in Q3 and Q4 of last year and the result has been a job boom as some companies seek to re-recruit after the cull. The very best talent could, at this point, name its price – and have those who cut jobs too deeply and too quickly lost an advantage? But agencies aren’t just in competition with each other; they will need to compete with the big consultants and auditors, who have already parked their tanks on the marcomms lawn, as well as the tech giants, the finance industry and others. Despite the aggressive “we need to return to the office” noises made by Goldman Sachs and others, I’m not sure the old ways of doing things are going to return. If you think that’s a bit far-fetched, consider this: back in the 1340s, the Black Death killed millions – no reliable stats are available, but the plague may have killed between a third and a half of the population of Europe – and caused acute labour shortages. Many landowners were ruined, the feudal system began to crumble, power was transferred to workers and wages rose, social mobility (in a hitherto rigidly stratified society) came in and, perhaps most significantly, what we understand as capitalism began. In addition, the expansion of Islam was slowed, and the once all-powerful Catholic church’s hold weakened and Europe began to urbanise. Pandemics cause huge changes in societies (see the Spanish Flu pandemic of a century ago and the Plague of Justinian in the 540s, which hastened the fall of the Roman Empire into the fledgling nations that would eventually become England, France and Germany et al). I mention all of this not just because labour shortages are in the news right now, but also because of a deal me and my partners at Green Square recently closed. Back in August we worked with the HOME Agency (a strategic marketing agency with offices in Leeds, London, Gibraltar and Sydney and clients like Grand Central Rail, Hitachi, Princes and Land Rover) to bring them together with Intermarketing Agency (an integrated agency whose clients include Red Bull, Adidas, Tesla, Netflix and Campari, and offices in the UK, USA, South Africa and Europe) to create a new entity called IMA Home. The newly-merged company has about 400 staff (170 at HOME, 230 or so at IMA) – but its first task is to recruit another 200. So, business is booming. Of particular interest to those, like us, working in the M&A space, is what the war for talent will mean moving forward. As long as the jobs boom persists, as it remains a seller’s (ie, employee’s) market, then employers will have to be super-flexible; they’re not only trying to attract talent to their shop, but to the wider industry too. This means being open about geographical location and office hours – and making the office a really desirable destination – somewhere people want to come to, rather than forced to do so, something that offers more than beanbags, babyfoot and subsidised sushi. It means acknowledging that unsung support staff (not just the talent, but the junior account execs, the cleaners, interns, grads, caterers, facilities types, the guy who brings your post to your desk) have an important role to play in creating the desirable destination. It means being open about using freelancers, and paying and treating them better (some talent just doesn’t want to be tied down to one employer, or to office life – do you really need to do that)? Another effect of the pandemic is that it may make creating start-ups easier and cheaper, but at the same time more difficult. Why pay for a big central London (or Manchester, Bristol or Leeds) office when you can hire a smaller, high-tech space that might suit you and your staffs’ needs better? On the other hand, the reputation (personal and business) of the principals will be crucial as a recruiting tool. How many people want to work for a complete bastard – even a talented one with a great track record and a cabinet full of awards – when there are plenty of other options available. And with a smaller base from which to operate, the use of tech will be key, as will the ability to translate in-person communications skills into virtual ones: can you be as charming and persuasive on Zoom as you are in the flesh? It changes the role of Green Square in all this too. Whilst financial performance will always remain critical in M&A pricing, due diligence will mean not just looking at the books, legals and commercials, but a whole host of other factors, including what we might call “agency people skills” – how it treats, hires and works to retain its staff. It’s always been said that marcomms is fundamentally “a people business” – that’s never been more true than right now. This is a subject I suspect we will be returning to…

After boasting of ‘unprecedented’ trading activity and unveiling a confident rebrand job, S4 Capital – now Media.Monks – is flying high. Tony Walford explains why the company is performing so well right now. If there’s one iron rule in the marcomms business, it’s this: never write Sir Martin Sorrell off. You do so at your peril, for the industry veteran’s ability to bounce back, reinvent himself and to prosper when rivals suffer is quite remarkable. Back in the late 80s, when his (then relatively tiny) company WPP bought the famous ad agencies J Walter Thompson and Ogilvy & Mather for the eye-watering sums of $566m and $825m respectively, observers thought him mad (including David Ogilvy himself, whose comments on Sorrell at the time are infamous for their directness). He was written off as no more than a bean counter who knew little of the creative world. But over time, he built WPP into the world’s largest advertising and marketing group and managed to keep shareholders (reasonably) happy over three turbulent decades. Sorrell made some mistakes, and arguably made some ill-advised purchases, but like all good businessmen he learned from them and was always able to move his business onwards. In 2018 he was forced to leave the company he’d built, but instead of retiring quietly (perhaps to enjoy his beloved cricket or to spend time with his family) he started up a new company, S4 Capital (now rebranded Media.Monks). Observers, including sympathetic ones, wondered if this was the right thing to do, especially as S4 was built from a shell company and Sorrell plowed £53m of his own money into the venture. But three years later, it turns out that Sorrell might have been right (again). In a business world disrupted by Brexit uncertainty and ravaged by the Covid pandemic, S4 is doing rather well. Last month it reported booming business amid what it described as a “post-pandemic rebound” in the global economy and that it was gearing up for expansion after revenues were at levels “beyond expectations”. The company has agreed a seven-year £321m loan with Credit Suisse, HSBC and Barclays, plus a five-year revolving credit facility that could allow the company to borrow as much as £100m from the aforementioned lenders while adding JP Morgan and BNP Paribas to the list. Impressive names to get backing from and it looks like Sorrell will be continuing the acquisition trail. So what’s gone right? First of all, Sorrell moved quickly and decisively. No sooner had he set up S4 than he started making acquisitions, first up the “creative production company” MediaMonks for a whopping $350m in July 2018 and then San Francisco-based consultancy MightyHive for $150m five months later. Other acquisitions followed, Sorrell building his new empire by consolidation (24 companies have been bought to date) and, observers say, further acquisitions are planned in all all-important Asia-Pacific and North America regions. So far, Sorrell’s new venture is very different from WPP – the focus has been on digital and high-value services and consultancies, rather than ‘legacy‘ agencies. There was also an emphasis from the start on a unified, client-centric approach, very different from the sprawling, diverse cultures of the holding companies like WPP, IPG, Publicis and Omnicom. Indeed, earlier this month Sorrell made his intentions clear when he announced the S4 rebrand as Media.Monks, a team of 6,000 “digital-first” experts working as a single P&L across 57 “talent hubs” in 33 countries (with S4 remaining the “financial brand” for the LSE listing and investor/financial communications). And this is why S4’s share price has risen so steeply in recent weeks – it’s because it is focused. Acquisitions are made because they fit with the structure and strategy, not because they can expand the empire or because they have a great client book. Quality over quantity, as it were. The boss is also pretty hands-off compared to how he used to be, content to let his employees and leaders’ entrepreneurial talents shine, as the core offer, strategy and philosophy remains intact. S4 is also, Sorrell claims, driven by “a core, client-centric proposition that defines the parameters of their increasingly global service offer”. As the (new) saying goes: “In today’s market, specialist and global trumps generalist and local every time.” It should be pointed out that it’s not just S4 that is doing well – those “legacy” holding companies, IPG, WPP and Publicis have also recently published encouraging figures, suggesting that they are benefiting from a post-pandemic bounce (although Dentsu, Omnicom and Havas are lagging a little). And if we look at S4’s latest acquisition, we can see where it’s headed. A couple of weeks ago it snapped up Destined – an Australian marketing firm specializing in Salesforce. S4 said it will merge Destined with its data division Mightyhive in a bid to bolster its presence in Asia Pacific. Destined, which is a Salesforce “platinum partner”, has provided cloud services for its Aussie clients including Spotify, Panasonic, Wingate and Weston Foods. “At S4 Capital we differentiate ourselves by being the most agile, knowledgeable and creative partners to the world’s leading platforms, hardware and software companies and I’m delighted to welcome [the team] as we expand our relationship with Salesforce providing services around their various clouds in Asia-Pacific and beyond,” said Sorrell. A Salesforce partner? Cloud services? Data? That won’t get the marketing trade press’ pulses racing. But I suspect Sorrell is long past caring about that. He obviously has a very determined view as to where the future of marketing is, and that’s where he’s going to stake his money (and legacy). Destined was bought because it fitted in with the S4/Media.Monks company vision and structure, because it was based in a region of growth, and because it operates in a space that is only going to become more important over time. In addition, Sorrell is offering the owners of the companies he buys a slightly different proposition. Rather than the more usual earn-out over time, he offers a cash and equity model (albeit with time locks and other limits). This way he can immediately integrate the acquired entities without the need to ring-fence performance for earn-out measurement purposes. Thus, the vendor shareholders get some cash upfront and, in accepting shares in the overall S4 business, they are buying into the future combined vision. Given the impact of Covid on many agencies, having this spread risk may be more attractive to an earn-out which is totally dependent on an agency’s solitary future performance – albeit you are banking on the other agencies in the group, particularly the larger ones, continuing to deliver growth. S4 shares are at their all-time peak right now with a market capitalization of £4bn. Given it has a (now) proven model in which it has scaled quickly, both in terms of clients and employee numbers and, so long as there is comfort the company isn’t over-valued and will continue to scale, having S4 equity as part of a deal could be pretty attractive to an incomer. For investors, sellers, even Sorrell-watchers, what’s not to like? Read more