Services: Green Square

“The end of the era” is the ubiquitous phrase flying around the ad industry airways today (15 April), following WPP’s carefully buried Saturday night announcement that its founder and chief executive would be stepping down after 33 years. Such a grandiose expression is not unjustified in this case, however; Sorrell arguably built from nothing what is the modern ad industry today (or, what was the modern ad agency until the duopoly and consultancies showed up five years or so ago). Tributes flooded in thick and fast from those who had worked with him, interviewed him and admired or criticised him from afar, despite the fact that no-one is quite sure what misdemeanours WPP’s internal investigation into an ‘allegation of personal misconduct’ threw up. Operationally, however, his departure is “unlikely to have an immediate impact on the group”, according to Tony Walford, partner at M&A boutique Green Square. “Although he had a lot of personal involvement in how it was run, it was simply too big for one person to control. “However, he is a huge character, someone the industry and the global business community turn to for opinion, as well as being the public face of WPP. Going forward, WPP needs to ensure it retains its personality.” Still, there are those who are happy to see him go. They are, by and large, the creatives in operation in the days before Wire & Plastic Products turned into a marketing company in 1985; former creative director Iain Maclean wrote: “I look forward to seeing the likes of JWT and Ogilvy freed from the man’s spidery web”. But perhaps it’s because Sorrell was famed for spouting phrases such as “I’ll carry on until they carry me out of the glue factory” and “I’ll die at my desk” that most tributes to his time at WPP are in the ilk of an epitaph. Justin Cooke, the founder and former chief executive of WPP-owned agencies Possible and Fortune Cooke, wrote: “There are few people on the planet more driven and focused than Sir Martin – I have seen unicorns a third of his age left for dust … I never had an email go unanswered. Often a succinct reply would appear in minutes. “From dawn until dusk his commitment was Olympic. He was passionate about talent and despite a relentless work ethic understood the importance of family … For me he will always be the Founder’s Founder. Goodbye Sir Martin.” The PRCA’s director general, Francis Ingham, said Sorrell, “shaped our industry into the global success story that it is today”, while Paul Frampton, the former chief executive of Havas UK, believes the ad industry will be left “with a sizeable hole” in the CEO’s wake. “More than anyone,” Frampton said, “Sorrell was the poster child for advertising equalling big business and the ad industry would do well not to lose this important association moving forwards.” He added that “his one failing is perhaps that he spent almost no time on his succession plan and considered himself invincible”. The succession plan, as it stands, appears hastily put together. Roberto Quarta, chairman of WPP, becomes executive chairman until the appointment of Sorrell’s full-time successor is made, while Mark Read, chief executive officer of Wunderman and WPP Digital, and Andrew Scott, WPP’s corporate development director and chief operating officer, Europe, have been paired together as joint chief operating officers. Even the board of WPP, it appears, are unsure of what comes next in a post-Sorrell world. “[It’s a] sad day for advertising …” said Michael Moszynski, founder and chief executive of London Advertising. “I also suspect it marks the high tide mark for the big holding companies.” Drew Meyers, founder of Made Studios and former president of Gyro, agreed that Sorrell’s departure marks a new epoch for the industry. He said: “Aside from whatever scandal may or may not have occurred, this is another massive sign that the ad/marketing agency business as we’ve known it is OVER … “The holding companies, and their focus on ‘shareholder value’ versus client value … are embarrassingly out of step with the needs of clients today and the realities of the marketplace. Looking forward to seeing how this trend continues to evolve and how agencies can reinvent themselves to deliver true value and impact.” Yet Brian Wieser, senior analyst at Pivotal, argues that the industry may be overestimating the power of Sorrell, and that the news doesn’t equate to “the end of the network model”. “If that was occurring it was going to happen regardless of Sorrell, and I’d argue that Levy is still actively involved in Publicis, so to the extent they are making changes, it’s independent of who is in the CEO role,” he said. Fellow analyst Walford agreed, stating: “Regardless of whether Levy and Sorrell had stayed in situ, the traditional model was always going to be challenged at this point.” Read more

The audacious plan raises several questions. Among them: will teams accustomed to competing gel as one? Can they produce great work together? And how will payment be calculated for their contributions? But the biggest headscratcher of all is how P&G has managed to convince three competitor businesses to pool their services and talent together in the first place. And the answer says everything about the influence it has over its agencies. Pritchard’s powers of persuasion P&G’s chief marketing officer, Marc Pritchard, has become the most dominant figure in the industry in the last year, with his widely cited sermons from conference stages demanding agencies go back to basics. Pritchard’s proclamations have in turn spurred the likes of WPP and Publicis to wax lyrical themselves about the way they are simplifying their unwieldy structures to give clients better service and value. The reason agencies listen when Pritchard speaks is because he controls so much of their market. “Behemoths like P&G hold huge power,” says Tony Walford, a partner at corporate finance advisory Green Square. “While agencies have a choice over which clients they take on, rostered conglomerates like P&G make up a significant chunk of revenue even at the advertising holding company level – packaged goods companies constitute 25%-30% of the network groups’ revenues.” With their share of more than $11bn of P&G marketing spend at stake, agencies have little choice but to say “how high?” when Pritchard asks them to jump. “It will be nigh on impossible for groups to simply walk away from the P&Gs of this world without having to take a massive, possibly fatal, revenue hit,” says Walford. “It looks as though they will have to accede and at least do some restructuring.” Such restructuring moves have already begun in earnest at WPP – which has merged a number of its agencies together to remove silos, and promised to go even further this year – and Publicis, which has established the ‘Power of One’ model to simplify its labyrinth of agencies and services by bringing everything together under one roof, and one P&L, for clients requiring a full-service solution. Notwithstanding these efforts, Pritchard feels P&G can improve both its bottom line, and its creative output, by reshaping its roster of agencies on his terms. “What we are now doing is reinventing the agency models, so we can get the absolute best creativity and do it in a way that will grow our brands and the business of our agencies as well,” he told The Drum. “We see this as a joint value creation opportunity.” The unlikely team of Publicis’s Saatchi & Saatchi, WPP’s Grey and Omnicom’s Marina Maher Communications and Hearts & Science will be led by Saatchi chief executive Andrea Diquez, who will keep that role while serving in the equivalent post at the new entity. Diquez is a respected operator, but she has a unique challenge on her hands now. Can three into one go? Marshalling teams from Publicis, WPP and Omnicom in the same building will require delicate handling of both practical and cultural challenges. On the practical level, procurement consultant Tina Fegent says the issues will include: “How do they get paid? How do you work out the fee structure? Is there a performance-related fee? Each agency has its own P&L and will want to maximise that – creatives struggle to do timesheets and I really cannot think that they will be saying ‘we spent 15 hours on it so the cost is £x’. “Who owns the intellectual property rights? Most contracts say it is subject to the client paying the agency, so how does that work if the co-creation is with x number of agencies? “And who does the production? Again, each agency will want to use their production company. But maybe P&G produces it itself.” And then there are the cultural obstacles, which Huge executive creative director Wayne Deakin expects to prove problematic. “I am sorry but I find our industry still full of too many egos and hidden self-interest types likely to spoil this happening, which is a shame,” he says. “Creativity is all about identity and culture. A culture that goes beyond just the creatives and which everyone is aligned towards. They will need strong creative leadership to pull the folks together as one unified team and get them aligned to a vision and values.” Asked if great work can come out of this setup, Deakin adds: “Yes and no. It comes down to their ability to pivot fast and work frictionless end-to-end if they want to be competitive. Those will be the pain points in this set up and that takes a very distinctive modern mindset that I am not sure is in place yet.” Other creatives are more optimistic about the agency’s chances of success. “P&G already has dedicated creative departments in the UK, so it seems like a natural evolution for them to all converge in one place,” say the freelance creative duo Senan and Pansy, who have worked in AKQA, BBH and TBWA among others. “If this new setup enables P&G to reduce corporate red tape and give more trust to their creatives, then it has a real opportunity to create some memorable work.” The future of the agency model? Where P&G leads, agencies follow. But will other brands? Last month, the Ogilvy & Mather Chicago managing director, James Hidden, wrote a blog for The Drum titled: “The agency model ain’t broke – but it certainly needs fixing”. Pritchard’s announcement wasn’t exactly what he had in mind, however. “This is at the extreme end of what I’d expected to see, and I wouldn’t expect it to become standard practice across all clients,” he says. “Really Pritchard’s move is the very extreme expression of ‘survival of the fittest’ analogy I used, in that he appears to be employing almost a ‘Fantasy League’-style draft system to cherry-pick the best talent from across his agencies and force them into one blended team. Given its power and spend, P&G is able to take it to its most extreme application in a way that smaller clients may not be able to do.” On how it feels as an agency boss to see a client set up on their own like this, Hidden adds: “For agencies, this is yet another structural challenge. The administrative and financial challenges of figuring out the billing/hours/P&L logistics are no small question, but clients proactively separating the wheat from the chaff means there’s no room for mediocrity.” That certainly looks to be true at P&G, which has cut the number of agencies it works with from 6,000 to 2,500 in the last four years. Even at that, Pritchard thinks there is still room to halve its roster. Its cull has reduced the company’s expenses by $750m and Pritchard is aiming for another $400m of savings to come. Whether other clients set up similar agencies, Pritchard has already set the tone for an industry that is much more closely scrutinising where money is flowing, and the value coming back in return. As Brian Weiser, the influential advertising analyst from PVTL, puts it: “I don’t think there are necessarily new implications for holding companies, except to reinforce the idea that everyone has to continuously find ways to drive like-for-like costs down.” But it’s not all doom and gloom for creative agencies. In his interview with The Drum, Pritchard restated his desire to bring more of the company’s media buying in-house, to combat what he has famously described as a “murky at best, fraudulent at worst” media supply chain. Yet the new creative agency, however unorthodox in structure, will still be powered by P&G’s existing roster. It could be a precursor to in-housing creative services too, but Fegent believes P&G is instead testing what happens when you have an agency structure that puts more emphasis on creatives than suits. “My gut feeling is that no, it doesn’t support in-housing as it is still using the big agencies but has just stripped out account management and planning to buy just creative,” she says. So the world’s biggest advertiser might be questioning the value of much of its marketing spend, but it hasn’t lost faith in its creative agencies yet. It just has more sway over them than most. Read More

The group’s execution plan includes targets for up to €1.5bn in bolt-on acquisitions, €450m in cost savings and adding thousands of people to its so-called “technology execution centres” by 2020. “The future is bringing together data, content and technology in a connected way,” said chairman and CEO Arthur Sadoun in an interview. “Our shift is from being a communications partner to helping clients transform their marketing model to face digital disruption and the threat of new entrants.” The marcomms industry is under pressure as clients slash marketing budgets and rethink their relationship with external agencies, from whom they are demanding greater transparency and simplicity. ‘Big Data’, once seen as a saviour of the holding groups, is under intense scrutiny following the Facebook and Cambridge Analytica scandals; and over the past couple of years, the effectiveness of programmatic ad placements, which have driven the digital marketing industry has been called into question. Some clients, including the world’s two biggest advertisers, Proctor & Gamble and Unilever, have started saying that they want more accountability and better value for their money, and are murmuring about taking marketing in-house. And with Google and even troubled Facebook (as well as consultancies like Deloitte and Accenture) threatening to gobble up still more of the agencies’ share of marketing spend, it’s no wonder that the big groups’ shares have taken a battering. Many shareholders and clients have been arguing in recent years that it’s time for a change, for the old guard to move on. Legends like WPP’s Sir Martin Sorrell, IPG’s Michael Roth and John Wren of Ominicom are still leading their groups. But Publicis went through a generational changing of the guard when Sadoun took over at the helm last June from the charismatic and long-standing Maurice Lévy, and its share price has held up better than those of its rivals. Back in 2015, while Lévy was still at the helm, and shortly after buying Sapient for an eye-watering $3.7bn in cash, he and Sadoun began restructuring “its business model and its organisational structure to put its clients at the center”, called Power of One. Power of One was intended to make it easier for clients to access the group’s different services by putting everything under one of four “solution hubs” – advertising, digital, media and healthcare. Under the new organisational structure clients can have a single profit and loss account across the group. Like its rivals, Publicis has a lot of global blue-chip clients and, since the start of the initiative, it has appointed 35 global client leaders who between them represent one-third of the group’s revenues. Last week Publicis said it wanted 100 client leaders – representing 50% of revenues – by 2020. It also flagged €300m to €500m per year between 2018 and 2020 to be invested in organic acquisitions in data and what it calls “dynamic creativity and digital transformation” (these are said to represent 16% of revenue with the group’s top 100 clients, but by 2020 it wants this to be 30%). Furthermore, it plans to increase by about half its headcount in its “execution and production centres” in India, Colombia, Costa Rica and Mauritius, expanding it from 8,700 to 13,000 – again in just two years’ time. These are ambitious targets. But as the old song goes, when the going gets tough, the tough get going. Hard times and uncertainty require steely resolve and concerted action. And in an era that calls for transparency, simplicity and accountability, starting up Power of One three years ago increasingly looks like a canny move. When I’ve spoken with agency clients, some have expressed frustration that when they deal with agencies, they end up talking to huge numbers of people, and often end up schlepping from shop-within-a-shop to shop-within-a-shop. “If I hire a big global agency, I expect to be able to draw on all the talents and resources within that agency, but to deal with as few people as possible” appears to be a mantra. I think that’s the need that Publicis is looking to satisfy. And it seems to be working. Yesterday Publicis’ luxury arm 133 scooped the Swarovski account. Insiders say that Power of One played a key part in the win. The agency aims to build an internal team of experts for Swarovski across its key markets, by pooling together talent from across the network including 133, SapientRazorfish and MSL in Paris and Shanghai. And earlier in the month it won Campbell’s Soup, with Sapient’s data capacity and Power of One apparently winning admiration from the Campbell’s marketing chiefs. And let’s not forget the Mercedes European account win either. Maybe $3.7bn for Sapient wasn’t so much to pay after all, so some humble pie for me there given my comments on value at the time. Sadoun is doing something right. And what he’s doing right is something rather simple – he’s putting the needs of clients first. Someone within the group has obviously asked the right question (which is: “Why, in this day and age should someone hire us over our rivals? Or hire an agency at all”?) Publicis’ move a couple of years ago to bring creative and media back under one roof was exactly what certain clients had been asking for for years. Separate media networks suited the holding groups, and fuelled their growth in the ‘90s and early 2000’s. So while the networks enjoyed fat profits, the clients increasingly felt that they were dealing with an opaque system. For all the talk about “blowing up silos”, the big groups have got more complex. And while Sir Martin insisted earlier this month that the industry’s troubles were cyclical, many – including some within the all-important client community – have argued that they are structural, and that a bold, brave and new approach is needed. There is clearly going to be a lot of devil in the detail – how does the accounting for one P&L for a client sit with the P&L(s) of the agency business units themselves and how will this next wave of Publicis acquisitions be structured, given the tension between an acquired asset having to deliver for its own ‘earn-out’ as well as doing the right thing for the group. Perhaps the subject for another blog! But what I like most is that Publicis isn’t just shuffling management chairs around, or merging a few shops, it’s putting resources where its mouth is. Power of One is emblazoned across the Services page of the group website, but I suspect it will be some time before we see ‘horizontality’ in a similar place at WPP (although I would not underestimate Lindsay Pattison who, as chief transformation officer, is charged with driving horizontality across WPP’s top 50 clients so expect a lot more here). Publicis has been working on a platform called Marcel to connect its employees, which it plans to unveil in June. It will invest €300m – much of it coming from the awards budget, apparently – in hiring, training and development of staff over the next three years. Sadoun is spending serious money on getting its employees to talk to each other, and to think and act as one. 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. Read More

The question is; what is driving this demand as other sectors ready themselves for Brexit? The over-arching driver has to be the digital transformation that is affecting how we do business and how we interact with clients, delegates and consumers. Twenty years ago video conferencing was said to be a threat – it actually made us travel more. And digital is having the same kind of effect on the events market; the immediacy of reaching people at virtually zero cost through online platforms is being echoed by bringing these tribes and groups together to experience the brand or product. The ramifications are far and wide; brands are creating events that will draw in their target audiences, consumers are posting and boasting about their lives, venues and organisers are seeing huge opportunities to capitalise on bringing likeminded people together. Immersive, experiential, brand activations may be the buzz words, but drawing audiences together to interact is the age old premise of the event industry. Not only is the sector seeing a new type of audience and increased demand from the brands, the traditional event agency model has evolved from solely venue finding to becoming a full service organiser providing creative, logistics and fulfilment solutions. Events are ingrained as part of today’s marketing mix and as such the more progressive and full service events agencies are becoming acquisition targets for the global marketing networks and companies. This is ratified by Tony Walford, partner at corporate finance advisors for the international marketing, media and technology sectors, Green Square. He says: “The world of marcomms M&A has been very focused on martech in recent years and for good reason – agencies that can prove the value they bring to their clients by being able to directly track and measure the results of their campaigns will always be of interest. “However, the corollary is that in focusing on ROI metrics, brands have started to lose that personal and direct touch with their audiences, and hence we have seen brands focus a lot more on social media interaction, open feedback, and reviews. “However, where the real opportunity exists is reconnecting with consumers in a more human way. We seem to be talking more often with acquirers about experiential and event agencies which can bring the ability for brands to directly interact with their audiences in a more physical manner – be it bringing awareness of product benefits via an experiential installation, launching new products at a major event or simply giving the opportunity to sample products at a festival. “As people, we love to be entertained and an immersive, personal experience with a brand’s involvement in a relevant way is a great way of building brand saliency, awareness and ambassadors.” For some years the event sector has struggled to find a voice, however, being increasingly recognised as being part of the marketing mix can only drive dividends both for the industry and the numerous private event agencies that exist in the sector. Disruptive technologies and the digital economy are driving demand for face-to-face and with companies like Green Square homing in on the sector, we are set to see a raft of interesting new allegiances; boom time for the event sector.

The advantage a blockchain has is that it’s very secure, and that records cannot be altered retrospectively without all the other records being similarly altered. And the longer the chain runs, the more secure it becomes. The blockchain organisation Ethereum allows almost anyone to contribute their computer to the network, simply by installing some software. Distribution helps to reduce tampering, fraud and cyber crime. With so many computers taking part, systems are also very hard to “take down” via traditional brute force network attacks (eg DDS – Distributed Denial of Service – attacks). So, blockchain seems to be one of the wonders of the cyber-age, and has almost limitless practical and useful applications. Some advocates have predicted that it will transform the way we all do business – and it might well. Certainly it’s got plenty of people in the marcomms industry very excited. Last week one of the world’s most powerful marketers, Unilever’s Keith Weed, announced that he’d enlisted IBM iX, (IBM’s business strategy arm) to create a blockchain solution to simplify the Unilver digital ad supply chain and provide more transparency and, consequently, build more trust – and Weed sees trust as a key issue not just for the industry, but for consumers too. As many observers have pointed out, the problem with digital advertising is that it’s become less transparent – and in the eyes of many clients – increasingly untrustworthy; the very opposite of what was supposed to happen. As fraud (I don’t think that’s too strong a word) and automation increased, more and more middlemen were introduced into the advertising supply chain in order to fix the problems. Great stuff. But here’s the contrarian’s view based on some inherent flaws. The first problem is that blockchain is by its very nature a space-hungry technology. Because transactions and changes are recorded everywhere the chain exists (these places are called “nodes”), the blocks can become very unwieldy very quickly – hundreds of gigabytes big. The chains are getting bigger, faster and storage capacity is not keeping pace; in addition, you might have to waste valuable time waiting for all that built-up data to download every time you made a transaction – not what you need when seeking to serve a programmatic ad. And let’s not forget – blockchains are immutable, so they can’t get smaller, only bigger. A related issue is one of sustainability. Blockchains use tremendous amounts of energy. According to Digiconomist’s Bitcoin Energy Consumption Index, cryptocurrency Bitcoin’s current estimated annual electricity consumption stands at 29.05TWh, which represents 0.13% of total global electricity consumption. That means Bitcoin mining is now using more electricity than 159 individual countries! This consumption isn’t just bad for the environment, it costs a lot of money. Microsoft has been exploring the possibility of underwater data centers to deal with the heat generated – watch out Mr Polar Bear. And what of security? Enthusiasts for blockchain often say it’s 100% safe, but that’s not entirely true. Blockchain is currently mostly used for cryptocurrencies, and in the past decade or so, a fifth of all Bitcoins have been stolen, hacked or scammed – more than $2bn worth. Although the tech has thus far proven robust, that doesn’t mean that this will always be the case. Then there’s the lack of standards and regulation in the blockchain space – and of course, a lack of standards and proper regulation is what got digital advertising into its present pickle. Salon Media Group, an online publisher, is offering its readers a choice – allow it to display ads, or instead lend it your computer’s processing power so it can mine cryptocurrencies. Make of that what you will. Ultimately, nobody knows what’s possible. We’re in the wild west again, just as we were 25 years ago. Babs Rangaiah, another senior Unilever marketer (and a big advocate of the use of blockchain in advertising) says: “It’s like 1992 for the internet when we had no idea what was possible and when. We had an idea of what it could do, but not how soon we’d get there. That’s where we’re at with blockchain.” Moving into uncharted territory is always exhilarating, but presents challenges. There will be outlaws and con-men, as well as prospectors and fearless pioneers. Blockchain might be a (or even the) solution but we need to keep our eyes and ears wide open.

So, if you tell someone that you work at an advertising agency, they will have a pretty good idea of what you do – you work at a place that makes adverts, either on TV and radio, in newspapers and mags, or on posters or online. But talk to them about media agencies, and the chances are you’ll get a blank look. An explanation of what a media agency is, and what it does, will almost certainly be required. Tell them that it’s about deciding where, and when, ads should be placed, and in which channel and medium, and they’ll start to get it. Tell them it is a vast, multibillion pound industry that employs many thousands of people and they’ll be surprised, but they’ll accept that it’s obviously a big deal. And so it is. Media has provided much of the fuel for the big holding companies’ growth. But now media, once the poster child of marcomms, is facing something of a perfect storm, a series of events and trends coalescing that threatens the discipline’s very existence. To consider why, we need to go back in time a little. Back in the 1950s and 60s, the golden age of print advertising and the birth of TV campaigns, the Mad Men ruled. Media was just an adjunct of creative. The Don Drapers came up with the genius ad, the suits sold it to the client, and the media department put it on TV or in the papers. They got a commission that covered all of this and everyone was happy. But as the media landscape got more complex, more diverse through the 1970s and 80s, some bright sparks realised that media buying and planning could be a separate discipline, as wealth-generating and as glamorous as creative. In the late 1980s media houses began to spring up, offering clients a bespoke service. What clients particularly liked was the fact that the bigger the media agency, the better the discount they could negotiate from media owners (the TV businesses, publishers, poster site owners etc). And so the media agencies were born. Hugely cash-generative and offering margins of 20% or more, they helped establish the holding-group-dominated marcomms landscape we see today. WPP, Publicis, IPG, Omnicom and Dentsu Aegis Network would not be the colossi they are today without the scale that their media offerings bring. But in recent times, things have started to change. People have been asking questions – and it’s not the lay people, it’s the clients. I know – and I know others who know – people from the client community who’ve started to question just what it is their media agencies do. This is partly because everyone’s looking for accountability and transparency these days, some evidence of a return on their investment; but also because its getting harder and harder for people to understand what’s going on. There’s no shame in this. Because of technology, media has become advertising’s Wild West, a lawless land where the usual rules don’t apply; where nobody knows what’s waiting for them in the next valley, or who the good guys are (the baddies don’t always wear black hats). The rise in the noughties of mobile and digital got everyone excited – clever algorithms could serve advertising to just the right people at the right time, transparency would reign supreme, automation would cut cost and complexity, and ROI would be available at the touch of a button. So far, so good. But things didn’t work out quite as planned. Four or five years ago, clever CMOs started to wonder whether something was up. Nobody could quite put their finger on it, but something just didn’t feel right. Then a series of investigations by the press, the Association of National Advertising in the US and others started to crystalise things. Reputable brands’ messages were turning up in all manner of inappropriate places – next to pornography, or Isis extremist videos, for example. A number of blue-chips began a (fairly short lived) boycott of YouTube, with Google forced to promise to clean up its act and intervene more in the automated ad process. Next, it emerged that the media supply chain was far more complex than anyone had thought, with layers of intermediaries all taking a cut, meaning that everyone (not just clients) ends up paying more than they perhaps ought to. Last month, the world’s biggest advertiser, Procter & Gamble, said it was planning to cut its agency roster by (another) 50% as it looks to “reinvent” its relationship with agencies and automate and in-house more media planning, buying and distribution. P&G has already in recent years cut the number of agencies it works with by 60%, from 6,000 to 2,500, a move it says has saved it $750m in agency and production costs. It is now targeting another $400m in savings. Chief finance officer Jon Mueller has been widely quoted, saying that while P&G is “prepared to pay” for creative talent, there are other areas that it is not prepared to pay for and it will be looking to “new models” to improve local relevance, speed, quality and lower costs. “We need the contribution of creative talent and are prepared to pay for that. We’ll automate more media planning, buying and distribution, bringing more of it in-house,” he said during a results call last month. Observers say that P&G’s suggestion that it may take some media work in-house and have its agencies work more flexibly (perhaps on a project basis, rather than on retainers) won’t do much to boost the confidence of the big holding groups, which are struggling for growth amid a focus on costs at some of their biggest clients and competition from the tech giants and consulting firms. Where P&G treads, others usually follow. Unilever, for example, is also looking to make cost savings of €2bn in overheads and brand and marketing investment. And the likes of Mars, Nestlé and Wal-Mart are reviewing their relationships with agencies and looking to consolidate. Moeller has said that P&G’s focus on media transparency is paying off. “There is more opportunity to eliminate waste by reducing excess frequency within and across channels, eliminating non-viewable ads, and stopping ads served to bots or adjacent to inappropriate content,” he said during that results call. Perhaps most worrying for the big media agencies, P&G has said it has eliminated waste while also increasing reach by 10%. Last year, P&G said it had cut $140m in digital ad spend with no detrimental impact on sales. P&G plans to improve ad efficiency still further through more “private marketplace deals” with media owners “directly” and “precision media buying” fuelled by data and technology. And here’s the biggie – once they’ve dealt with digital, clients will start looking at “traditional” media, like TV. Why not deal with Sky, NBC, ITV and the rest direct, and cut out the middleman? In a now-infamous speech in January 2017, P&G’s chief brand officer Marc Pritchard said he’d discovered that one of its media agencies was buying digital media with P&G money in a deal that saw the agency receive extra advertising inventory that could then be sold on to other clients at a profit. Also last year, Debbie Morrison, director of ISBA (which represents the interests of advertising clients) said she no longer believed media agencies “have got the best interests of their clients at heart”; ISBA subsequently created a new framework agreement to guide how clients should contract media services. There’s not a lot of trust or confidence out there right now, and the situation seems to be getting worse. Also, in a market where much work is commoditised, it’s difficult to put your rates up. The old practices of charging “surcommissions” and “kickbacks” are no longer deemed acceptable (if indeed they ever were). So, what can the Mindshares and Zeniths, and their holding companies, do? What place is there for them in the second decade of the 21st century and beyond? One thing is for sure – they aren’t dug into a bunker doing nothing. These are some of the most successful and significant marcomms operators for a reason. And as we all know, where there is challenge, there is also opportunity. In our view, there has to be an emphasis on transparency – real transparency, not the slightly opaque kind. In order to trust an agency, the client has to be able to see the processes involved in getting their ad onto a screen or poster; not only see, but understand. They need to know where every penny is being spent, and why. Trust in media agencies has been undermined, but it hasn’t been entirely eliminated – yet. Complexity needs to be opened up. Complexity suited certain unscrupulous players, and was intentional. There has be a back to basics approach, especially on the matters of ethics and accountability. In this regard the big boys perhaps have much to learn from the independent media shops. Take December 19, a media planning and buying agency, that has from the outset adopted a “wholeheartedly honest and customer-focused approach” with the “vision of a company with integrity and transparency”. Dan Pimm, a co-Founder of December 19, said: “It may seem obvious but creating a business with a client-first philosophy was groundbreaking when we started, while much of our competition focused on making profits. We’ve created a transparent remuneration system for our customers providing them with a clear understanding of how we are making our money, which also allows us to trade correctly with media owners and ensures there are no compromises to our neutral media planning and buying decisions”. Such indies have carved a niche for themselves with a certain kind of client – one that’s big enough to want to do a decent amount of advertising but too small to take its media function in house. Perhaps now is their time and the niche spreads more generally. As well as a commitment to transparency, the new indies have positioned themselves as creatively-minded problem solvers for clients. Solving people’s problems for them is a nice high-margin business, a better space to be in than high volume/low margin semi-automated commodity trading. And if you solve someone’s problem for them, you’ve got their trust and loyalty. And what of that all-encompassing word ‘content’? For some time now media agencies have grappled with the potential opportunity of not only providing the pipes for delivering content, but actually generating the content that flows through those pipes. Arguably their heritage of processing volumes, integrating systems and managing the detail means that the media agencies began from a strong position to embrace and leverage tech and data – but it’s the ones that win on the content front that will lead this sector into the future. There is one other issue that falls out of all of this – returning the media agency world back to one that is an attractive place to work, that lures the next generation of bright grads away from the tech, consultancy, banking and startup alternatives. This is a big issue across marcomms generally and one that we’ll be looking at in a future blog. I am sure Sir Martin and co are a step ahead of me in their transformations, but it is certainly going to be fascinating viewing to see who sails calmly out of the storm…

To investigate this further, Tony Walford, Barry Dudley and Andrew Moss from media and marketing mergers and acquisitions (M&A) advisers Green Square, which specialises in agency sale and acquisition, held a roundtable discussion at The Ivy to hear from the agency owners that have experienced it first-hand. Jon Wilkins, chairman of Karmarama, part of Accenture Interactive, Richard Armstrong, chief executive officer (CEO) and founder of Kameleon, Ollie Bishop, founder of Roast and creative agency Kitty (previously founder of Steak), Jennie Talman, co-founder of Just:: Health, now part of Havas, Jamie Allan and Steve Sowden, joint CEO’s of Intermarketing and Jon Priest, CEO of Future Thinking, shared their stories. What motivated your decision to sell in the first place? Jon Priest says that for him growth was the most important factor: “Looking back on it, it was more about changing our capital structure so we could grow. We also wanted to take some money off the table as part of this process, and in the end private equity (PE) acquired 60% and management retained 40%. “We were a single site with 80 people and, without investment, we couldn’t build strategically to grow it any further at that time. The choices were to run it as a lifestyle business, sell it or do a PE deal to grow through acquisition, which is what we have been doing. It was principally about capitalising and getting the funding to grow – we couldn’t grow any more ourselves so we needed some assistance.” Future Thinking became PE backed, but what about the businesses that already were? Jon Wilkins from Karmarama, part of Accenture Interactive, explains: “Before I joined, Karmarama wanted to be more digitally centred and had ambitious growth plans. The thinking was that PE was great because you get an injection of capital and can hire more people. The market was moving quickly and the plan was to scale up the parts of the business that were of interest, such as mobile and data, to really substantiate the offer. Without PE, I don’t think we could have done it.” “That’s exactly what we originally said,” Sowden agrees, referring to Intermarketing’s change of view on PE backed entities for its exit. “We originally decided there wasn’t a chance of going into it, but then as we went through the process we said OK, let’s have a look at PE backed acquirers because we knew it was a very real choice. “Our fundamental learning from PE was that you need to be clear on what you need the investment for and be quite tight on what purposes it serves,” Wilkins continues. “As long as you maintain an open dialogue with your PE backers, and everyone is clear on what the goal is, you stand more chance of success.” Jon Priest describes PE firms as investors, not owners: “You go into it with your eyes open. From day one they are looking for exit scenarios, and any investment in growth is supported as long as there is an exit. We got through some structural and other things which we didn’t think were important at the time, but of course they are.” Sowden explains: “We were a second-generation management buyout. The business is 30 years’ old and we bought it six years ago but used bank debt rather than PE investment. The agency hadn’t dipped in its predecessor’s hands, but it also hadn’t thrived, so when we took it on we wanted to do the things we always thought that other businesses should do. We got some advice and structured the agency to run more efficiently and part of that business was to look at who the next MBO team were going to be. ‘Pass it on’ was continually in our heads. As the business grew we built a great team including two candidates that would have been part of a third MBO. The issue was the valuation we were reaching meant doing another MBO would have put too much pressure on the business and wouldn’t allow us to continue our plan to grow into new geographies. Jamie Allan from Intermarketing, elaborates: “We got to the point where we had opened in Amsterdam and Sydney and were looking at the American market. We needed an acquirer with experience in the US. We also had a plan B in our back pocket. If we didn’t find the right acquirer that could give us what we wanted we would start to build our own network of agencies in order to deliver what our clients needed. That was a good negotiation point because we weren’t in a position where we had to sell, plus we had access to funding.” “The British culture always has an element of ‘you build it to sell it’,” says Ollie Bishop, about PE backed digital agency, Steak. “From a moral perspective that may be a bit dubious, but for a lot of people that build agencies at the start, that is the motivation. What was important to me when I sold Steak was that there were a good 20 people in the agency that at least made six figures out of the sale of our company. Up to this point many of them couldn’t afford to buy a house in London, so this was a great opportunity for them.” Jennie Talman from Just:: Health, now part of Havas, says: “For us, it was two things that determined the time to sell. Our clients are all in the pharmaceutical industry and it was shortly after we founded the agency when we first started talking to Green Square. When we started out there was a real appetite for clients to work with the boutique, independent agencies as boutique agencies are more creative, so it was a great time to launch the company. “But the way the pharmaceutical industry is going now, you have to be global and now 80% of our company is global work. Although most of it we do with our teams based in London, a key requirement for a client is the agency they deal with must have a global footprint. When we go in to pitch we have to demonstrate this capability, so the primary decision to sell was geographical for us.” Talman continues: “The second reason was that it just felt a bit lonely. My business partner and I wanted to work with other senior people, to carry on learning and be challenged. That’s been the real benefit for us. We’re now working in the new Havas King’s Cross building and there are 18 marketing services agencies located there. Collaboration between agencies is strongly encouraged and as a result the thinking and the ideas we are bringing to our clients are truly differentiated. And professionally I feel challenged and energised.” Richard Armstrong explains that the reason Kameleon sold was to do with growing capabilities: “We wanted to create further value, which we couldn’t do unless we further developed our offer. Our positioning needed to evolve, and we were missing some skillsets, so our key acquirer criteria was one that could bring us the complimentary capabilities we didn’t have, such as data, media, analytics and search. We figured if we could access these, we could then expand our client operations and subsequently step towards different geographies. By following this strategy we could increase growth, realise proper value and do the things we want to do. So we went hunting for the stuff we didn’t have enough knowledge in to grow organically – and found all of that and more in Be Heard Group, our acquirer.” “The weird thing is you do all of this selling for a reason, and then two months down the line, you find there are other benefits you’d never thought of,” Sowden concludes. What is the most positive thing the acquirers have bought to your business? Sowden instigates the discussion by highlighting the importance of autonomy: “Intermarketing’s acquirer, Advantage Smollan, stayed true to its word and left us alone. For the first six months post-sale it’s really important not to change the company. This is a fear when going through the process – everyone was asking ‘are our jobs safe?’ and people need to settle in. You then start to think ‘Ahh, maybe it’s not just about all the things that we think are good about our business’, there are new avenues to explore.” Allen from Intermarketing adds: “While we will need permission to do certain things, our acquirer is looking to us to build the strategy for European growth – organically and via acquisition – and assist our move into the US. Asia will follow. We couldn’t have done this so quickly or as easily on our own. They have an infrastructure we can leverage and their promise of support was key to our choice.” “Having a PE owner has been a good thing,” notes Priest. “They professionalised us, they gave us a lot of knowledge (particularly around finance) and they gave us access to debt equity and capital market finance. However, PE can be bad at respecting the way agencies operate and corporate culture – they will walk all over it if things go badly. The deal is nearly always structured in such a way that they have the majority of voting rights, but they don’t really know what the impact of exercising those rights on an agency will be unless they get better at communication. Just stomping in and making unpopular decisions is not the way to deal with agency folk. I welcome them taking an interest and taking in knowledge. Even though we have lots of products, we still need people to demonstrate excellent service before the client will purchase.” “When engaging with PE you need a partner who is seasoned in people businesses,” revealed Wilkins. “We found that getting impartial advice to support you and the investor to say, ‘this is the market dynamic’ or, ‘it doesn’t really work like that’, through non-executive or consultancy help, was vital. Prior to our sale to Accenture, Green Square did a brilliant job of explaining the ecosystem of Karmarama to our PE backers. The good thing that came out of that process was they started to ask our opinion because they then understood we were the only ones that knew how the company worked.” He adds: “The reality, for everyone around this table, is that we’re entrepreneurial. The deal we did with Accenture obviously changed a bunch of things, but we also applied our tactical spirit to make sure it works for everyone. I think Accenture sees that entrepreneurial side to us, which is invaluable to its business, because we come up with different ideas and see routes around problems.” Future Thinking’s Priest reiterates that PE owners are exit strategy focused: “They want to make money. We don’t know all the answers and if we need answers then we will ask them for their view, but they are in a business that works in a different way.” Jennie Talman shifts the focus to the benefit of relationships: “For us, being part of something larger and being able to walk into pitches with the comfort of knowing we had global delivery capability was key. As pharma companies procurement teams continue to consolidate their rosters with the networks, being an independent healthcare agency is no longer really an option unless you do something very unique. Suddenly, we could get to the top table and Havas has brought us work. It took a while for this to properly get going, but being part of the group has been incredibly beneficial. Plus, of course, having different operational and delivery expertise available to us within Havas has been very helpful.” “We often see the promise of work being brought by an acquirer, but in reality you still have to make your own luck,” points out Green Square’s Tony Walford. “One thing we always tell our clients is to infiltrate the group you have joined as soon as the deal is closed. Look at the clients they have, understand where your services can be sold in and find the person that can kick that door open for you. This has worked across a number of deals we have done and to great effect in maximising earn-out payments”. Picking up on acquirers bringing work, Kameleon’s Richard Armstrong discloses that As Be Heard, acquirer of Kameleon’s acquirer, brought them those missing capabilities. He explains: “The hope was that we would actually be able to sell joined-up services alongside sister-agencies within the group. And that is now starting to happen – probably the biggest successes being two significant recent wins for Coca-Cola and Dreams, both pitched and converted with the collaboration with sister businesses. Working with peers within a larger organisation has been a real motivator for me, but at the same time the relatively small, start-up nature of the Be Heard group still leaves a very strong sense of entrepreneurialism – which I guess is further helped by having equity in the listed holding company – you want everyone to collaborate and succeed.” To which Ollie Bishop responds: “Steak was Dentsu’s first sizable acquisition in the UK. This meant we had a pretty clear run at clients as there was no-one else around to hoover them up. However, once the Aegis deal happened, our world changed quite a bit and we no longer had a clear playing field. Dentsu also paid us less attention. That said, we just got on with it. We worked out what we needed to do to maximise our earn-out and went about doing just that. “Interestingly for us was how the corporate structure of Steak needed to change as Dentsu’s global offering developed – they wanted to roll Steak USA into their 360i agency during the earn-out period, which they couldn’t do without our consent as part of the deal. Green Square helped us restructure the deal which meant we could lock down the US earn-out element leaving us to focus on the UK. Basically, you just have to be ready for all eventualities.” “I’m often asked how Accenture’s culture has impacted Karmarama and the question is quite irrelevant,” Wilkins replies. “Aside from PE owners, most acquirers will let the agency get on with it and it’s down to the agency to allow cultural shift to happen when it’s for the better. With Accenture there really is a culture of cultures, like a group of different villages, each with their own culture and it’s working for us.” “We’re still getting to grips with the cultural side but are very positive,” Allan clarifies, commenting on Intermarketing’s ethos. “We’ve traveled an awful lot since closing the deal only a few months ago – not only to our own offices, but also getting to know people across the US and in South Africa. It’s been pretty enlightening and we’ve started to build strong links with other agencies in the group.” How did you find the process, and is there anything you would have done differently when informing your team of the change? Jennie Talman admits that the process was a lot more intense than Just:: Health ever thought it would be: “We met a number of interested parties and, as a US footprint was critical to us, Green Square took us to New York to meet with a PE backed acquirer as well as some senior network agency heads over there. Once we decided which acquirer we wanted to go with, there was then a lot of negotiation around points and the structure of the deal that were very important and we hadn’t even thought about. Whilst Green Square dealt with all this for us, they obviously made sure that the final decision on key issues was ours. I don’t think people realise just how much is involved in a sale process. “If I did this again I would do a better job at communicating with our senior team about the benefits of the acquisition. It’s not just about financial reward. It’s important to think about what the acquisition will mean for each individual and how it fits with their professional values and goals.” “My brief to Green Square was I wanted a trade buyer under which I could do an earnout and leave after around three years. I felt that I was done with doing what I was doing and wanted a new challenge,” discloses Jon Priest. When a PE acquirer was put to us during the process that already had a research agency that could be merged into us with me and my team managing the enlarged business, retaining some equity and going on a buy and build strategy, this was that new challenge. So my expectations were completely changed and it’s been a very interesting journey. The process is the process – laborious and you need to ensure you make time to understand everything your advisers are telling you whist not getting distracted from the day to day.” Intermarketing’s Sowden highlights that the intricacies of the deal were key: “We had a specific issue in having a client that was key to our agency and our deal needed to be structured to accommodate this. The most stressful time came at the eleventh hour. Last minute questions and due diligence delayed closing the deal by six weeks. Having gone through so much to suddenly have this happen was a frustration, but we got it done with Green Square providing guidance, reassurance and confidence. That said, we always had a Plan B!” Read more.

“Our market intelligence would indicate that 2018 will be an extremely busy and congested pitch market,” says David Indo, ID Comms’ chief executive. The current cavalcade of reviews is being likened to the events of 2015, a year dubbed ‘Mediapalooza’ on account of the vast amount of business that was put out to pitch. Back then Coca-Cola, DHL, General Mills, Honda, L’Oreal, Mondelez and P&G all moved accounts to new agencies while the likes of Coty, GSK, Reckitt Benckiser and Unilever ran pitches before opting to retain their incumbents. But according to Indo, marketers’ motivations are “decidedly different” this time around compared to their hunger for “immediate and bankable savings” in 2015. Then, “the desire to secure improved prices overshadowed everything else,” he says. Now advertisers are challenging their agencies to illustrate what measures they have in place to mitigate against ad fraud and enforce brand safety, marketing’s hottest topics. “Many brands have spent the last 18 months seriously considering their media agency requirements and getting their ‘own house’ in order prior to going to market,” he says. “If 2015 was a race to the bottom, 2018 has the makings of a year where the challenge for the agencies will be who is best equipped to race to the top.” Agencies can’t say they weren’t warned. Clients have been challenging them on their efficacy ever since P&G’s chief marketing officer Marc Pritchard set the tone almost exactly a year ago with a landmark speech demanding the industry face up to the concerns around its “murky at best, fraudulent at worst” media supply chain. And marketers, at least, appear to have heeded his call – reviewing not just their media business but increasingly large swathes of their creative and communications needs too. “The communications marketplace is evolving at an ever-faster pace and many advertisers are quite naturally questioning how they can best operate in this environment and whether they have the right shape and skills internally and externally,” says Debbie Morrison, a director at the advertisers’ trade body, ISBA. “The status quo no longer delivers the results that these organisations need.” Such a frank assessment from the organisation that styles itself as the Voice of British Advertisers will do little to reassure anxious agency bosses. But the onus is on them to better allay clients’ concerns and in turn their own, according to marketing procurement consultant Tina Fegent. “Agencies have not been proactive in talking to clients about the issues,” she says. “I appreciate it’s a hard call to make but I haven’t seen any proactive discussions with clients. This affects trust.” One thing the major marcomms groups have been doing is working hard to remould their agencies into the image they believe clients now crave. The Havas Group developed a new tool to give its clients a complete view of a programmatic buy, from where ads are going to how much they are spending. Called the ‘Client Trading Solution (CTS)’, it’s not a way to trade programmatically but is being pitched as a “client facing, fully transparent control tower displaying all programmatic trading”. Publicis has focused on simplifying its services and made much of its ‘Power of One’ model which brings to bear for clients all of the group’s operations from creative, to media to digital under one roof and one chief executive. It will be pressure tested by the Asda review. WPP, meanwhile, has focused its efforts on consolidation of an even more permanent kind with the merger of its media agencies MEC and Maxus into “media, content and technology agency” Wavemaker, which launched this month. It’s easy to see why agencies are doubling down on consolidation and simplification. Published last year, the second Media2020 report by Media Sense, ISBA and IPSOS Connect – which surveyed 250 senior British marketers – recorded an uptick in respondents stating that they will use fewer agencies in the future compared with the first survey, conducted in 2015. In fact, 62% of marketers agreed they will use fewer second-parties, up 4% in two years. But Paul Frampton, who was the chief executive of Havas Media Group UK & Ireland until November last year, questions whether marcomms groups – generally – have moved quickly enough to respond to clients’ ever-changing needs. “The winds of change for agency holding groups have been predicted for some time but the volume of big business being reviewed so early on combined with the simultaneous aggressive challenge from management consultancies was unexpected and will create nervousness from analysts,” he says. “Brands are demanding both a new strategic model and genuine transparency, but the bigger holding groups seem slow to provide either.” Those who might fill the gap include smaller independents who could compete on price but might not have the capacity the biggest advertisers require and the management consultancies who, as Frampton hints, have bullishly parked their tanks on the lawn of the marketing industry in recent years. But despite hoovering up advertising and digital agencies in recent months, and increasingly touting their creative credentials, the likes of Accenture and Deloitte have shown little appetite thus far to compete at scale in the media buying business. A third possibility, and one that marketers are increasingly exploring, is the option of bringing more of their marcomms requirements in-house. Internal creative agencies are already relatively common, and the setup has proved successful for Specsavers, Channel 4 and the BBC who have drawn plaudits for the quality of their output. In-house media trading desks remain lesser spotted but that may change with P&G’s newly revealed plans to “automate more planning, buying and execution and bring it in-house”. Alex Tait, a former Unilever marketer who now runs the consultancy Entropy, says he’s been speaking to “a lot of brands” who have been mulling over the best way to structure their marketing efforts. He does not, however, think a wholesale shift to in-house media buying at the expense of agencies is imminent. “The fact is that maximising ROI with modern media and marketing communications involves getting the right model across internal and external teams, platforms etc,” he says. “Full outsourcing isn’t a very sophisticated approach but there are a lot of levels in between. You’d have to be very confident with your capability to bring all media buying in house which I don’t see many brands doing in reality.” So the outlook may not be as gloomy for agencies as the spate of recent reviews and restructures would suggest, but testing times await as 2018’s answer to Mediapalooza gets underway. The best thing the likes of WPP can do now is to remind advertisers – and their investors – of the qualities they possess that can’t be so easily replicated by startups, consultancies or even clients themselves. “WPP has some great creatives sitting within its various agencies. It needs to push these to the forefront,” says Tony Walford, partner of corporate finance advisory Green Square. “There are huge pressures on driving down costs within agency groups, but one thing that cannot be commoditised is creativity. Most clients would be prepared to pay a premium for great work and WPP should be both pushing its creative credentials and letting shareholders and the City know that creativity is largely immune to downward pressures.” Whatever tactic agencies adopt in the pitch warfare that’s to come, there are literally billions riding on them getting it right.  Read more