Sectors: Creative, Media & Technology

There have been a lot of headlines recently around agency reorganizations – think Omnicom, Monks, Deloitte and IPG. Green Square’s Barry Dudley raises some questions that, as we approach the end of the year, agency owners should consider asking themselves. Earlier this week, I was caught by the headline of an article in another revered media business, the FT. It read, “PwC to embark on ‘unsettling’ overhaul.” Having spent some years in Andersen and then Deloitte through the dotcom boom and bust of the late 1990s and early 2000s, I have a lingering fascination for that world. I was expecting the piece to be about another round of redundancies – all of the Big Four accounting firms have been reorganizing and making cuts in recent times. There are indeed 2,700 staff and partners affected by the reorganization, but that doesn’t necessarily mean they will become redundant. So, what’s going on and what food for thought might there be for us in the creative, media, production and tech worlds? This is a UK-only initiative, led by senior partner Marco Amitrano and managing partner Laura Hinton, that is going to “simplify” the business and “reduce duplication.” As any business evolves, it encounters more and more complexity, which can sometimes add unwanted fat that goes unnoticed. Perhaps as a result of growth and absolute size, perhaps as it extends its offer, right through to handling things such as how WFH is built into operations.  

Food for thought 1

When did you last step back from your business to consider whether a reset or reorganization might be needed to perhaps simplify or rethink layers that may have started to make things harder, not easier? Another of the objectives was to “create scale and increase our market impact.”  

Food for thought 2

If you were to carry out some sort of review, what would the levers for scaling and creating market impact be? It’s relatively easy to look for places to cut costs; what’s not so simple is finding new ways forward that take the business to another level, turning the fat into muscle. Hinton told staff, “I know that, for some, change can feel energizing, while for others, it can be unsettling.” With the creation of six new teams, including a standalone ‘digital delivery unit’ covering tech, innovation, AI engineering, cloud and data, it sounds as if there is going to be quite a bit of nervousness for many people.  

Food for thought 3

What lessons did you learn from how your staff reacted the last time you added a new dimension to your business and changed old ways for new ones? Change is never simple, but when the term AI creeps into the mix, it will almost certainly make some mildly terrified – it needs to be planned and confidently managed.  

Food for thought 4

This is a repetition of a food for thought in a piece I did on Next 15 and S4’s results – Whether you think AI is going to turn things on their heads or it’s going to just be something that makes your existing business a little more efficient, you have to have a view. And you have to demonstrate knowledge and confidence around AI to your clients and prospects, not least because they are likely to know less than you!   PwC is clearly going on the front foot with this! So, AI can’t be ignored, but for me, humans possess magical and unique creative capabilities that will never become automated. Jo Bacon, the new Group CEO of M&C Saatchi UK, summed things up really well when she recently spoke to The Drum: “At the end of the day, I think creativity is human; there is a human element to all creativity. AI is an idea that humans have had to train, so a truly original idea cannot be created by AI. “AI does have an important role in any agency’s future, but I think it will be used as an efficiency tool for production and an effectiveness tool; it’ll never be trained to replace human creativity. It doesn’t have that human edge to have an emotional conversation. Of course we’re investing in AI, but we have a lot of great creatives that are still writing great content and great stories. Excellent storytelling is still very much at the heart of what we do here.” Read more

In less than a month, the UK’s new chancellor, Rachel Reeves, will unveil her first budget and Green Square director Tony Walford says agency owners should brace themselves for tax changes that could hit them where it hurts. It’s hard to overlook that Rachel Reeves, the UK’s new chancellor of the exchequer, is preparing the country for significant tax changes in the upcoming budget on October 30. And while Labour has committed to maintaining income tax, national insurance, VAT and corporation tax at current rates, capital gains tax (CGT) and inheritance tax remain in the spotlight. As M&A advisers, at Green Square we are frequently asked about potential CGT changes and how they might affect business owners. While we can’t predict the future, here’s a simple guide to the current CGT situation and possible change – though remember, this is a general overview and specific tax advice is always recommended.

Historic CGT position

Back in 1997, CGT rates in the UK were based on the individual’s marginal income tax rate, with a top rate of 40% for higher-rate taxpayers. Ironically, it was the Labour government that introduced taper relief in the 1998 budget, which significantly reduced CGT on business assets. Under taper relief, the longer an asset was held, the lower the CGT rate and, after two years, the effective rate could be as low as 10%. In 2008, Labour replaced taper relief with entrepreneurs’ relief (now called business asset disposal relief, or BADR), which further reduced CGT on qualifying business sales to 10%, up to a lifetime limit of £1m (later increased to £10m under the Conservatives, but then reduced to £1m in 2020).

Current CGT position

Under the current rules, shareholders who are employees, including directors and founders holding at least 5% of shares for two years (and EMI option holders for more than two years), qualify for BADR. This allows the first £1m of lifetime capital gains to be taxed at 10%, with the remainder taxed at 20%. As an example, if a business founded by three shareholders is sold for £15m, with each owning a third (and assuming they hadn’t tapped into their lifetime gain limit), their £5m gain per person would incur £100,000 in tax on the first £1m (at 10%) and £800,000 on the remaining £4m (at 20%), leading to a total CGT bill of £900,000 per person.

Potential changes

Rachel Reeves has not provided any details on CGT changes, but there’s speculation it could be aligned with income tax or a flat 30% rate or tapered based on the length of ownership (as it was in the old days). Here are a couple of possibilities: 1. Worst case: removal of BADR and CGT aligned with income tax This would be a case of Labour reversing the business growth incentives it had created from 1997 onwards and the shareholders in the above example would each pay £2m at a 40% rate (or £2.25m at a 45% rate) compared with £900,000 currently. If the first £1m remains under BADR, their CGT bill would be £1.7m at 40% or £1.9m at 45% – still a significant increase from today’s rates. 2. Median case: removal of BADR with a flat 30% CGT rate Our shareholders would each pay £1.5m. If BADR is unaffected, the bill drops to £1.3m, still £400,000 more than the current rate.

What would we like to see?

As M&A advisers, ideally the current CGT regime would stay as it is, rewarding entrepreneurs for taking risks and creating employment. But that’s very unlikely to happen. Given changes are inevitable, we’d suggest increasing the 10% BADR lifetime allowance to £3m, with anything beyond £3m taxed at 30%. In the example above, a gain of £5m would result in the same CGT bill of £900,000, but gains over £5m would see higher taxes. A £10m gain would be taxed at £2.8m instead of the current £1.9m. Painful, but not draconian.

When are changes likely to take effect?

Given the £22bn hole in public finances we keep being reminded of, it’s likely that changes will take effect from budget day, October 30. However, there’s a chance they could be deferred until the next tax year, April 6, 2025, allowing time for preparation. For those close to completing a sale, it’s advisable to aim for closure before October 30. But be cautious of accepting a discounted deal just to expedite the process – it would be quite annoying to find the discount given was more than the ultimate tax increase. Additionally, if completing before October 30, pre-paying CGT on future earnouts to lock in the current rate is worth considering. For those planning to enter the market soon, we suggest waiting for the budget outcome. While if changes are immediate, you may reconsider selling depending on the new rates, if the changes are deferred, there’s a tight window to close a deal, with six to nine months typically required to find the right acquirer and complete the sale, so you’d have to move fast. Read more

As holding companies invest millions in building and acquiring complex AI tools, Publicis’s acquisition of long-established shopper marketing specialist Mars United Commerce makes ‘perfect sense,’ says analyst. Launched in 1973 by shopper marketing pioneer Marilyn Barnett, Mars United Commerce today employs over 1,000 people across 14 global offices and leverages its suite of commerce solutions to drive growth through shoppers for global brands, including Coca-Cola, Unilever, Lego, Molson Coors, Samsung and Johnson & Johnson. The acquisition becomes the latest in a raft of purchases aimed at further building Publicis’s commerce capabilities for its clients. In July, the group acquired Influential, the world’s largest influencer agency, while March saw its Publicis Sapient business takeover supply chain consulting business Spinnaker SCA. In 2023, Publicis also acquired the website personalization engine Yieldify. Analysing the thinking behind the Mars deal, Tony Walford, director at corporate finance and advisory firm Green Square, said: “While there has been tons of talk around AI and how it can bring efficiencies, smarter ways of working and lots of agencies are throwing the kitchen sink at it (S4 and its Monks being a notable example), the fact still remains that buying good agencies that generate measurable client revenue growth, from techniques the client understands, still can’t be beaten. “It was interesting that Shopper Media Group (SMG) was mentioned a lot in the Next 15 results announcement on Tuesday. It clearly sees this as a jewel in its crown and I’m proud to say it was a Green Square transaction. SMG is very high growth, has analytics capability, which Mars also has in its Marilyn platform and Shopper clearly works. It may well be Publicis was eyeing SMG’s success and, given Mars is also very strong in the retail arena, it makes perfect sense.” The group’s continued acquisition strategy is being fuelled as a result of delivering above expected figures in recent months. In the summer, Publicis reported bullish Q2 figures and told investors it was raising its 2024 net revenue organic growth guidance from 4-5% to 5-6% after reporting organic growth of 5.4% for the first half of 2024 and a better-than-expected 5.6% in the second quarter. The US (up 5.3%) and China (up 10.5%) were among its biggest success stories in Q2. Bringing Mars into Publicis means its clients can now create and implement end-to-end commerce solutions that optimize strategy and insights, combining first-person data from its Epsilon arm with that of Mars to give a 360-degree view of purchase journeys; combine the scale Publicis Media with Mars’s deep understanding of retail organizations; and merge insights into e-commerce sales and operations from Publicis’ digital shelf platform Profitero. Publicis Groupe CEO Arthur Sadoun said: “Following the acquisition of Influential, we are now in a unique position, able to help clients understand their existing customers and future prospects, and connect that knowledge on an individual level across the new media channels that work hardest for their business: connected TV, creators and commerce. All of this, in its own ecosystem, giving it control over its customer relationships and transparency in its investments and outcomes.” Rob Rivenburgh, global CEO at Mars United, will continue in his role and Publicis has said there will be no major changes in senior personnel within Mars, which will remain as its own branded entity within Publicis Groupe. “Joining Publicis Groupe will help Mars realize our vision of being the preeminent global commerce company faster and more completely,” said Rivenburgh. “We’re excited to have the support of Publicis to bring new opportunities to our existing clients and also to share our connected commerce solution with new clients around the globe. We look forward to writing the next chapter of commerce together.” Sadoun added: “We are delighted to be welcoming Rob and his incredible teams at Mars to Publicis Groupe. Its innovative spirit and proprietary platforms will further connect and complement our existing capabilities to deliver industry-leading, end-to-end commerce solutions for our clients, both online and offline. “With the acquisition of Influential this summer, and now Mars, Publicis is uniquely positioned to help our clients understand both existing consumers and future prospects and connect that knowledge at an individual level to the new media channels that work hardest for their business: connected TV, commerce and creators. All of this, in clients’ own ecosystems, gives them control over their customer relationships and transparency in their investments and outcomes.” Read more  

Sir Martin Sorrell’s S4 Capital and Tim Dyson’s Next 15 both announced H1 figures this week and neither made particularly palatable reading for shareholders or staff. Green Square’s Barry Dudley offers some analytical morsels around these latest numbers. Two businesses with very different operating models – Next 15 is decentralized, empowering the business units, while S4 operates with one P&L. But they currently have a common challenge in their dependence on tech services clients, with Next 15 having 34% of net revenues in this sector and S4 an even bigger lump at 44%. Declines they have seen in this sector are the primary reason that their results are behind where they would like them to be. With all that said, you probably know what picture their numbers are going to be painting, so as well as touching on the maths I am going to try and extract a few lessons or food for thought that you may find useful. Starting with Next 15, its net revenues were down 2.2% organically in H1. Certainly not great, but just under two weeks ago, it announced that one of its biggest clients had decided that it would not renew its contract after the initial three-year term – there have been estimates suggesting that this could be 10% to 12% of 2026’s revenues (which will be the first full year without that contract), as well as hitting 2025’s revenues. Next 15’s share price halved on the news. As part of its acquisition model, which involves paying a proportion of its consideration in its own listed equity (much like S4), there will be quite a few people feeling a little upset right now. Havas and IPG encountered a similar challenge in their H1 results: IPG was hit by the “loss of a large AOR assignment with a telco client late last year” and Havas had a “partial loss of a big client in the US.”

Food for thought 1

Client overdependence will bite you at some stage. Possibly one of the toughest things to fix in any size of business, but certainly something you should always be looking to address. Tim Dyson, Next 15’s CEO, was typically frank and forthright. His description of some of its companies that aren’t doing well as “being on the naughty step” was kind of refreshing and as you would expect, he countered that by calling out the businesses that have been doing well. He half apologized for mentioning SMG quite a few times, which has seen “80% growth” and that’s before it has cracked the US – Green Square acted for SMG when it went into Next 15, so we are very happy with the mentions… Dyson’s frankness got really interesting when he talked about its ‘next Next 15’ strategy and the work it has been doing with the board.

Food for thought 2

Dyson said that as it has bought more and more businesses, its head office costs have naturally grown, but to a level that no longer works. Any group should regularly be revisiting these costs, how central services are provided, evolving how everything fits together. Even a one-entity business needs to periodically review how senior management costs, finance, IT, HR etc are functioning and whether they are fit for purpose. Which may mean hiring as opposed to cutting.

Food for thought 3

Dyson referenced the need to “prune” the number of operating entities as things were sometimes “inefficient,” which would involve reducing the 21 or 19 significant businesses (depending on how you define significant!) down to 12. Just as head office and back office need regularly reviewing, how all your business units, offers and products fit together needs to be continually revisited and evolved too.

Food for thought 4

Another challenge that Dyson highlighted with the growing number of business units was having clients in “multiple parts of the business” and that they are “not as joined up as they need to be.” Existing clients are likely to be the best and most effective sources of new business. You may not have units that need to talk to each other more, but focusing on what more you could do for your existing clients, perhaps for other brands they have that you currently don’t act for, should be new business agenda item number one.

Food for thought 5

In going from 21 (or 19!) to 12 significant businesses, Dyson referenced “culture” as being fundamental when bringing businesses together. Whether you are looking to restructure or not, maintaining a brilliant culture arguably has to be the biggest priority. It’s easy to get lost in numbers when headwinds blow but never forget the talent.

Food for thought 6

In another article on The Drum, I referenced how New Commercial Art’s clear agency proposition was fundamental to the exciting deal it did with WPP. Dyson said at one point during the earnings call: “You guys just are clueless about what our business does.” He rightly stated, however: “We need to solve that.” Imagine you had one minute in a lift with Tim Dyson to explain what your business does and why it is exceptional…

Food for thought 7

Dyson described an AI capability where something that takes two to three days can now be done in an hour. But what the client receives at the end is the same thing. How do you maintain pricing and revenues with these sorts of dynamics? We’ll come back to this one. Although Next 15 is working through some bumps, I see it as a fundamentally strong business, with net debt below 1x Ebitda, going back to basics. As Dyson concluded: “We remain on the naughty step, but we’re working hard to get off it.”

Turning to S4…

S4’s bumps seem another level bigger. Net revenues were down 13.5% on a like-for-like basis. “Global macroeconomic uncertainty” and “higher interest rates” were cited as factors, but most of the other listed peers have had this too but not been hit this hard. I would argue it’s the “client caution, particularly among, large technology clients” that’s the toughest thing it is grappling with. It reduced the “number of Monks” by just under 1,000 (around 12%) in the last 12 months. While its outlook for the full year talks of revenues being down versus original guidance, it believes operational Ebitda will be maintained. This can only be delivered through more cost savings. And while tech clients in general are a challenge, there was the seemingly inevitable “lower activity from one key client” in that sector that hit hard (see Food for thought 1). Revenues were down in all three existing revenue segments, Content, Data & Digital Media and Technology Services, the latter down 36.6%. The operational Ebitda margins for these segments were 2.6%, 15.3% and 35.7% in H1 2023, respectively. These changed to 6.9%, 18.5% and 12.4% in H1 2024. So maybe not a huge surprise to hear that there will be two segments moving forward – Marketing Services and Tech Services (see Food for thought 3 and 6). But the standout section of the earnings presentation was Section 4: Artificial Intelligence. Scott Spirit, chief growth officer, stepped in for Wes ter Haar, who was in client meetings, to walk through what S4 is doing here. It was impressive, pretty much what I imagine GM was taken through when S4 pitched for (and won) work from that client. This demonstrated front foot, top to bottom embracing of AI and what can be done with it, what’s possible. Next 15 is marching ahead here, too, but Dyson started his talk around AI by saying: “We can’t avoid AI.”

Food for thought 8

Whether you think AI is going to turn things on their heads or is going to just be something that makes your existing business a little more efficient, you have to have a view. And you have to demonstrate knowledge and confidence around AI to your clients and prospects, not least because they are likely to know less than you! This brought things back to Food for Thought 7 – pricing. There was talk of moving away from “time and materials” (but not completely) and to an “output model,” “license fees” and “price per asset.” These are tough things to make happen and getting away from just time and materials has been an objective for decades, but now the opportunities to genuinely have a case and a model to shift the pricing model really exist. S4’s full-blown embracing of AI is typical of Sir Martin – his macro and future view of the industry has always been respected and is more often than not right. His challenge here is the timeline to get the model right to deliver stand-out results in the future as the market heads the way he foresees when he has the financial markets wanting returns and answers right now. Never underestimate Sir Martin. Read more

Green Square’s Barry Dudley analyses how Adam&Eve co-founders James Murphy and David Golding have done it again as they sell NCA to WPP. On February 11, 2020, three people incorporated a company, each holding one of the three shares that made up the whole of the issued share capital. Just one month later, on March 11, the World Health Organisation referred to the spread of Covid-19 as a ‘pandemic.’ They say a time of crisis is a smart time to start a business. Judging by yesterday’s announcement that WPP has acquired New Commercial Arts (NCA), it seems David Golding, Ian Heartfield and James Murphy are very smart. They started with a proposition of “uniting brand and customer creativity to make brands more desirable and easier to buy.” When I headed to the NCA website, it was no surprise to me that they’ve stuck to this – “brand communications” and “customer experience” flash up first, followed by “more desirable” and “easier to buy.” They know what they are good at and they do it very, very well. Having clarity and consistency of offer seems very obvious, but, more often than not, when we at Green Square first spend time with a new client, we find ourselves trying to decipher what they actually do and what sets them apart. There’s no confusion with NCA. So you can be clear, consistent, creative, award-winning, with happy clients – but can you balance all that with making money? Let’s take a look at how NCA has done. The average monthly number of employees in its first 10-and-a-half months trading to December 31, 2020, was an impressive 20. Even more impressively, it had amassed £2.49m of cash and made a profit after tax of over £0.5m. Through 2021, its average number of employees increased to 31, it had turnover of £16.5m, a gross profit of £6.9m and an operating profit of £3.5m (a staggering 51% margin). Cash at the end of that year was a ‘mere’ £5.4m (cash, plus bank term deposits). Another 20 heads were added in 2022, taking the average for that year to 51. Turnover of £34.2m, gross profit of £10.2m (an increase of nearly 50%), but operating profit was down slightly on the prior year at £3.2m as I suspect it played catch up with investment in operations and infrastructure. Yet the year-end cash position stood at £12.5m – that’s some seriously impressive management of working capital, probably helped by clients paying in advance for production costs (and possibly media). The average number of employees for 2023 was up by 12 to 63. Turnover dipped a little, but, most importantly, gross profit was up another 25% to £12.7m. And an operating profit of £3.4m. Those of you who haven’t switched off from all these numbers may be saying that their margin has been declining. You’re right, but arguably it is moving towards a more sustainable place with an operating profit margin of 26.7%. And cash … £12.1m. So, I’d say it has done pretty well. Another thing it has done pretty well at is building a quality management team and aligning that team through equity. The three initial shareholders may have founded NCA, and I’m sure bring their respective forms of magic dust from time to time, but they’ve put equity into the hands of many others – Murphy and Golding equally share the first £1m of any sale proceeds, six other shareholders join them at differing percentages in the next £39m and there are probably at least 10 more that participate in anything above £40m of sale proceeds. Given that they were likely to have had a big lump of surplus cash that will have been paid out as part of the deal, I am sure that the £40m mark will have been surpassed and who would bet against the total deal value at the end of their earn-out being greater than the £100m+ that was reportedly achieved by Adam & Eve when they were acquired by DDB? The parallels with that deal aren’t just financial. When Adam&Eve went to DDB, it was to leverage the energy and entrepreneurialism of Adam&Eve through DDB’s scale – arguably to reinvigorate DDB. Murphy is to become CEO of Ogilvy Group UK… And I wonder what Sir Martin Sorrell may be thinking. Many moons ago, when he was CEO of WPP, it brought a legal action claiming that Murphy, David Golding and Ben Priest, the founding partners of Adam & Eve, were in breach of contract when they set up the agency – it alleged they approached staff and clients of their former agency, RKCR/Y&R (part of WPP), while still bound by the terms of their gardening leave. WPP won, received an apology an out-of-court settlement. I think WPP has won again. Read more

Marginal organic growth in Dentsu’s H2 results masks a business that may just be regaining some momentum, suggests Green Square’s Barry Dudley as he looks at the Japanese holding company’s latest numbers. At first sight, an organic growth in revenue of 0.2% in Q2 seems an odd thing to lead your results announcement with. Or maintaining the guidance for the full year at a mere 1%. But for Dentsu, it’s a pretty big moment because in all of the previous five quarters, it had shrunk – by 1.6% in Q1 2023, 4.7% in Q2, 6.0% in Q3, 6.6% in Q4 and 3.7% in Q1 2024. Strength in the home market of Japan sits behind this, in particular “continued recovery in internet advertising,” so H1 organic growth of 2.1% was healthy – Japan represents 40% of net revenue. But all other geographies declined across H1: Americas down 5.1%, EMEA down 0.9% and APAC down 6.6%. The Americas “has continued its recovery, recording a number of new client wins” and it is hoped there will be a return to growth in H2 – encouraging for Dentsu’s second biggest market. EMEA also seems to be turning a corner, with the 0.9% H1 decline consisting of a 9.4% drop in Q1 but a 7.8% organic growth in Q2, with “stronger than expected Media performance in some local markets” being part of the story here. APAC would appear to be the region that still needs fixing, with pretty scary declines in all of the last six quarters of between 6.2% and 9.1%. The focus here is on “long term recovery,” but perhaps there’s a shorter-term in organic strategy (acquisitions) to reset the trajectory. There is reference to exporting its Business Transformation offering out of Japan into other markets and “expanding globally” Dentsu Lab, “the group’s creativity and innovation proposition.” For me, it’s the latter that will likely fuel the future. Being “positioned at the convergence of marketing, technology and consulting,” it is taking on the consulting and tech giants, not just the other marketing groups (and independents). What will set Dentsu apart is how “creativity and innovation” is applied within all this. And what of the share price given the stock market turmoil in recent weeks – closing at 3,870¥ today after the results were announced, this is almost exactly where things were at on the close of business on Friday, August 2 (3,872¥) before the market meltdown the following Monday. There’ll be more twists and turns to come, I’m sure, but for the moment, Dentsu seems to be gathering some positive momentum. Read more

The latest financial updates again show the full range of fortunes being experienced across the major marketing groups, as Green Square’s Barry Dudley explains. On today’s WPP results call, Mark Read, the CEO, used words such as “satisfactory” and “firm.” And along with CFO Joanne Wilson, the term “headwinds” cropped up pretty often. So, it was no surprise to hear that LFL (like-for-like, another term for organic) revenues less pass-through costs were down 1% for H2 and down 0.5% in Q2. One of the biggest factors behind this was a 24.2% decline in China in Q2 – a stark contrast to Publicis’s announcement a couple of weeks ago, where China was its highest growth geography at 10.5%. The “rest of the world” and the UK were also down by 5.3% and 2.2%, respectively, but all other geographies were up: North America 2.0%, Western Continental Europe 0.3% and India a strong 9.1%. We saw some rather big global stock market drops on Monday, with Japan down 12% off the back of a US slowdown/talk of recession. While things seem to have stabilized, there is a good chance that this will be a factor for all businesses in H2 2024. All of this has led to a downward revision in WPP’s full-year guidance of -1.0% to 0% growth in LFL revenues less pass-through costs. Read talked through WPP’s strategic progress. Unsurprisingly, AI came first alongside WPP Open – it was refreshing to hear how they are using AI in “how consumers experience work,” not just how it may save costs operationally or make production more efficient (which were there, too). Seeing an AI-generated Jose Mourinho in an ad was a welcome break in the call. Next up was the focus on progress within VML, Burson and GroupM, which now represent a whopping 70% of WPP’s sales. Along with the sale of FGS Global – for £604m cash after tax – the streamlining of the group is continuing apace. Then came the awards, in particular WPP’s successes at Cannes Lions this year, which were impressive. So, how does all this stack up with Stagwell, the self-styled “challenger holding company,” whose results were announced late last week? Well, they were much more at the bullish end of the spectrum. Organic net revenue growth – one of the best indicators of the trajectory of a business – was a very modest 1.2% in Q2. But this is off the back of 8% in Q1 and, most importantly, Stagwell reaffirmed its guidance on organic net revenue growth for the year of 5% to 7%. So, it is hoping for a strong H2. The CEO, Mark Penn, referenced three things that will hopefully fuel this – a “flood of new business wins at the end of Q2,” which included General Motors work for 72andSunny and Anomaly, “media margin in the back end [of the year]” and strong performance expected in Advocacy. Penn’s demeanor on the earnings call was very much one of someone presiding over a business that has momentum. Biden stepping out of the presidential race has reignited the Democratic party’s prospects, which Penn believes will flow through into what is already very strong growth in Stagwell’s Advocacy segment – 42% year on year. And new business, in general, seems to have moved to another level: “Average size of new business wins increased 65% YoY; 57% increase in deals exceeding $1m.” This certainly seems to be backing the “challenger holding company” mantra. Read more

Holding company results have been coming thick and fast – some good, most not so. Green Square’s Barry Dudley analyzes the latest results from IPG and Havas. After some strong results from Publicis, which included the guidance for full-year organic revenue growth being lifted from 4-5% up to 5-6%, we saw 5.2% organic growth in the second quarter from Omnicom. However, the latest round of financial results revealed last week by IPG and Havas paint a different picture. Two words from the first sentence of the press release sum up IPG’s performance – “solid” and “moderate.” With 1.7% organic growth for the quarter and guidance of 1% for the year, I’d argue this is a group that’s simply treading water. There was talk of initiatives in AI, strong retail media performance and broadening their offer to solve more of the challenges that clients face, as we might expect. But there were two problem areas: first, the “tech and telecom sector continued to weigh on growth,” in particular the “loss of a large AOR assignment with a telco client late last year” that is continuing to hurt it, and second, “in keeping with recent quarters…underperformance at our digital specialist agencies.” Good news for us at Green Square was that M&A is still on the agenda as a more rapid route to increasing capabilities and growth overall. Next came the Vivendi group results, of which Havas is just one piece. Vivendi’s organic revenue growth for H1 was 5.8%, just ahead of Publicis and Omnicom. Canal+ and Lagardere make up over 80% of Vivendi’s revenues, so the fact that Havas delivered only 0.3% organic growth gets somewhat lost. For Q2, Havas actually had an organic decline of 2.3%, which pretty much wiped out its Q1 growth. Much like IPG, this was mainly down to a “partial loss of a big client in the US,” which left that geography down 6.4% for H1. The impact of this loss will also be felt in Q3, but the hope is for a return to organic growth in Q4 or maybe in 2025. This leaves a lot for the acquisitions to cover off to maintain overall growth. It was announced earlier this week that another step had been taken towards separately listing Havas, which looks set to be on the Euronext Exchange in Amsterdam. There will be no hiding within Vivendi’s numbers once this has happened. Fascinatingly, Canal+ looks to be heading for a listing on the London Stock Exchange. It will be interesting to see how the Converged strategy, which was announced in June, unfolds and it was again positive to see reference to future M&A: “Virtually zero net debt [in Havas] to seize investment opportunities in the future.” This all made me think back to Nigel Bogle’s infamous statement: “I’m only ever three phone calls away from disaster.” This was said when BBH was an independent agency and losing a client (or three!) could potentially impact the viability of a business. IPG and Havas clearly have scale and diversity of revenues that protect them from three phone calls becoming a “disaster,” but it would appear that just one phone call can create a pretty big bump. Read more