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

The advertising giant reported better-than-expected profits and revenues, reflecting a trend of increasing brand spend – despite high inflation – across the industry. Omnicom Group, the world’s second-largest advertising holding company (behind French titan Publicis), reported its second-quarter financial results Tuesday evening after trading closed. The results beat Wall Street estimates on both profit and revenue. Performance was primarily driven by growth in the company’s advertising and media practice, as brands ramped up spending ahead of the US presidential election and the Paris Olympics, which will commence July 26.

Topline highlights

Omnicom achieved a 5.2% increase in organic revenue, adding $188.3m compared with the same period last year. This contributed to a total revenue lift of $243.9m, or 6.8%, bringing the quarterly total to nearly $3.9bn, slightly above analysts’ estimates of $3.82bn, according to data from the London Stock Exchange Group (LSEG), a leading financial markets research firm. Earnings per share for the quarter were $1.95, exceeding the consensus estimate of $1.93 and reflecting a 7.7% year-over-year increase.

Key growth drivers

Omnicom’s positive results were underpinned by contributions across various regions and disciplines. Regionally, the US led with a 6.3% organic growth rate, followed by 6.9% in the UK, 4.5% in Europe, 24.5% in Latin America, and 8.0% in the Middle East & Africa. However, slight declines were noted in the Asia Pacific (0.1%) and North American territories outside the US (8.3%). In terms of business segments, the company’s advertising and media division – its largest division in terms of revenue – saw a 7.8% rise in organic growth. The increase was driven largely by the media side of the business, with additional contributions from creative agencies. Meanwhile, Omnicom’s experiential marketing practice grew 17.6%, thanks in large part to work tied to the upcoming Summer Olympic Games in Paris. Precision marketing posted a modest 1.4% increase, with Flywheel Digital’s strong performance offsetting the loss of one client. A new contract with General Motors – which shook up its CRM and creative agencies roster last month – is expected to further bolster Omnicom’s advertising and media performance in the second half of the year. ”The most challenged discipline for the second quarter in a row was the curiously named branding and retail commerce [segment],” points out Barry Dudley, partner at financial advisory firm Green Square and a marketing services industry veteran. The division recorded a 3.8% dip – the same decline it saw in Q1. ”It would seem that the online retail commerce bubble off the back of Covid has worked its way through, while consumer appetite for experiences – physical experiences in particular – have grown,” Dudley observes, though he says this trend is ”not really new” at this point.

Strategic acquisitions and investments

The $93m increase in acquisition revenue was primarily attributed to the acquisition of Flywheel Digital, highlighting Omnicom’s strategic expansion efforts. The holdco has also made strides in consolidating production capabilities with the June launch of Omnicom Production, which will bring global production operations under one umbrella. CEO John Wren emphasized on an investor call Tuesday that this move is expected to generate substantial revenue opportunities, positioning Omnicom to become a leader in the production space. The launch of Omnicom Production comes on the heels of a handful of additional partnership announcements, including the acquisition of creative studio Coffee & TV in February and collaborations with Adobe, Getty, Amazon, Google and OpenAI. What’s more, on July 10, the company debuted ArtBotAI, an intelligent content platform designed to create high-quality content at scale, just weeks after Omnicom’s TBWA debuted Collective AI, its own suite of AI tools made to benefit of both employees and clients. These developments may help enhance Omnicom’s position in the agency world’s increasingly heated AI battles. “From Gen AI to e-commerce to production, we are continuing to enhance our offerings to meet our clients’ needs for better inform strategic insights using AI, creatively inspired content that can be personalized at scale and investments in targeted media that can be measured through quantifiable outcomes, all delivered in the most efficient and effective manner,” said Wren.

Market reactions

Despite Omnicom’s largely positive results, at least one financial advisory group, BofA Securities (previously Bank of America Merrill Lynch), maintains a skeptical outlook. According to an Investing.com report, the group reduced its Omnicom shares target from $88 to $87, maintaining its ‘sell’ position on the company. The mixed reaction was reportedly due to concerns about the quality of growth and other financial factors that are not directly related to key business operations. Other firms, such as Barclays and Morgan Stanley, offered more favorable assessments of Omnicom, citing strong growth prospects, particularly in the advertising and media division. On Wednesday morning, shares of Omnicom were down more than 4% following the release of the Q2 report. But on the whole, Omnicom’s stock is performing well this year – shares have appreciated by 10.2% year-to-date, outperforming the broader industry, which has seen a 1.9% decline. Read more

The bullish holding company chief tells The Drum why he’s confident its model can withstand outside economic and political “pressures” and deliver better-than-expected growth this year. “Against all odds” is the well-rehearsed phrase Arthur Sadoun returns to time and again during our conversation about Publicis Groupe’s strong first-half financials and its correspondingly upgraded full-year forecast.

For the sake of the health of the industry as a whole, is it important that his peers perform strongly also? “Oh, yeah, I do give thought to that,” he says. “To be clear: I care a lot about the industry doing well because every time the industry is doing better, I am doing better, and we are building something we all want to be in.” The competitive edge doesn’t leave Sadoun for long, however. “Now, the reason why market share is important for me, very important for me, is that it is a demonstration of the superiority of our model.”

The investment world’s view

Barry Dudley, partner, Green Square: “Given the mayhem going on in the world right now, these are strong results from Publicis and its financial performance looks set to be at the very top of the pile again during this series of announcements from the big listed groups. But what really caught me was the enthusiasm for the future, both verbally from Sadoun and also in the numbers themselves, with the guidance for full-year organic revenue growth being lifted from 4-5% up to 5-6%. That’s a bold move. “Fundamental to this is Epsilon and its strength in data. This is an area that isn’t going to slow down. Sadoun referenced some businesses holding back on their AI investments – as this releases it will further fuel Publicis’s strong tech and data offer. Sapient has struggled of late with reductions in IT consulting revenues, but I’d expect this to come around in the future. Feels like the Publicis run of strong performance is going to continue for some time.” Read more

We’re very pleased to be sponsoring the “Excellence in Pro Bono Working” award at tomorrow’s Communiqué Awards with Passion Partnership. In May’s edition of PM Live, Tony Walford shares his thoughts on the ongoing consolidation in the healthcare marketing industry. Healthcare and medical communications have long been favoured sectors for investors. Unlike many of the things we purchase and consume, medicines and healthcare products are often necessities, and thus far more recession-proof than those products representing discretionary spend. Combine the fact that pharmaceutical firms have big (and global) marketing budgets in recognition of the specialised skillsets and regulatory knowledge necessary to market in this vertical, and you naturally have a subset of the marketing communications industry that is very attractive to those looking to invest. Over the last 30 years we’ve seen increasing consolidation of agencies within this sector. Following the introduction of stricter regulations in the early 2000s, agencies moved away from traditional medicine advertising and PR, instead focusing more on medical education, targeting healthcare practitioners and ensuring compliance. During this period, agencies and acquirers became more discerning in what they were respectively providing and acquiring. In more recent years we have seen a sharp uptick in technological advances in data analytics and digital marketing, meaning agencies that provide clients with measurable campaign data and insight have become of great interest, and we’re now seeing agencies investing time into understanding how AI techniques can be used to best effect in a marketing context, not only to become more efficient internally, but also to benefit their clients. Agencies that develop proprietary techniques and IP to exploit their advantage are top of acquirers’ wish lists. We’ve witnessed an evolution from the traditional marketing of drug therapies in a rarefied environment to a highly sophisticated, technology-driven marketing approach, with fully tracked campaigns being optimised in real time to deliver true ROI. It’s obvious why healthcare and life sciences marketing businesses are so attractive to investors and it’s no longer an area dominated by marcoms groups. There’s the PE-backed healthcare management consultancies, such as Blue Matter and Trinity, healthcare service providers (CROs) including Eversana and IQVIA, and healthcare communications groups, including OPEN Health, Real Chemistry and Spectrum Science. There’s no shortage of acquirers for quality assets. That said, acquirers’ focus continually shifts as marketing skills develop and the hottest new thing today can quickly become tomorrow’s old hat. When selling an agency, the trick is not to leave it too late and to sell while still in the growth phase. This is particularly pertinent when selling into a private equity-backed roll-up that is looking to exit in the near term (three to five years) as it is extremely growth focused. That’s not to say specialist expertise is not of interest, simply that if the roll-up’s own exit is near term, then maintaining the ‘hockey-stick’ P&L graph is vitally important to them. While all healthcare disciplines are driven by growth, those that have longer-term ownership profiles (for example publicly listed, large PE or family office backed) tend to have more of an eye on particular skills an agency brings and how it fills gaps in their armoury. The drive here is to get through procurement and onto a roster to acquire significant clients, drive long-term retention and cross-sell offerings once in the door. Thus, being able to cover as broad a healthcare marketing church as possible is very important to them. In conclusion, the last few decades have seen healthcare and pharma marketing become increasingly sophisticated with a plethora of companies and groups developing and offering these services. It remains one of the hottest disciplines for M&A within the marketing sector and, despite current micro- and macro-economic and global concerns, we are not seeing any slowdown in interest in the sector, with those agencies of scale and specialist disciplines being of most interest.          

As part of The Drum’s Health & Pharma Focus, Green Square’s Tony Walford analyses mergers and acquisitions in the sector and looks at what is driving investor interest. Given medicines and therapy purchases are often necessity purchases, less prone to reductions in discretionary spend, and coupled with the significant size of pharma marketing budgets, it becomes obvious why healthcare marketing has always been high up on investors’ wish lists. Historically, medical communications tended to be the preserve of the network advertising groups, all of which have their own healthcare subsets containing various specialist agencies (think Omnicom Health Group, Publicis Health, Havas Health and You – the list goes on), but given the attractiveness of the sector, it’s no surprise we’ve seen a rise in the number of PE firms entering the fray. Some of these are huge $500m revenue life science commercialization firms, such as Eversana (backed by JLL/Water Street) and Blackstone-backed Precision Medical Group, but there are also more marketing-focused groups of varying size, many of which are just as significant. For example, take Avalere Health, previously known as Fishawack. Following an LDC-backed MBO in 2017, it made several strategic acquisitions before reaching a pivot point in 2020 when more substantial investment was needed. This came in the form of Bridgepoint and it has since undergone significant transformation, having acquired 19 agencies and consultancies globally and employing over 1,500 staff. OpenHealth started in 2011 as a joint venture between Chime and its founders. The management team scaled it through acquisition before selling it to Amulet Capital in 2018. Having scaled it further, Amulet subsequently sold it to Astorg in 2022. It’s now around $250m in turnover with over 1,400 staff. Real Chemistry is a major player in the healthcare-integrated communications space and, with New Mountain’s backing since 2019, has invested further into its AI and data analytics capabilities, enhancing its service offerings. At its current 2,000 people and $600m turnover, it’s yet another example of how the right investment-backed strategy can achieve real scale. You can see the trend here. Then there are the more mid-market players, such as Knox Lane-backed groups Spectrum Science and Fingerpaint, Waterland’s Sciris and Levine’s Prime Global. These firms have historically focused on investing in agencies delivering at least £2m profit, but there’s some new and entrepreneurial players entering the mix who are happy to look at smaller opportunities where the skills are a fit for what they are looking to build. When it comes to selling a healthcare agency, there’s no one size fits all. That said, the majority of acquirers are looking for at least £1m EBITDA (and preferably at least twice that) for it to move the needle in terms of their own scale, unless it’s a niche offering or in a market they don’t already cover. So, what’s the market currently doing? In 2023, partly impacted by the hike in debt funding costs and combined with many pharma companies reining in spend, which impacted some agencies’ revenues and profits, the headline number of deals declined. That said, it was still a busy year across the piece with 28 healthcare marketing transactions of note being completed. 2024 has started well and, again, it is predominantly the PE-backed acquirers leading the charge. Eight of the nine marketing-specific deals since January have involved PE and it has been a blend of healthcare comms, digital healthcare, market access and payer advisory agencies being bought. In some ways, we should probably stop referring to these groups as being ‘PE.’ The reality is they are now big trade buyers in their own right and sit at the acquisition table next to the publicly listed outfits – it’s become a bit irrelevant where the funding is from. At Green Square, we’re finding digital health is a particularly active and sought-after area, with a growing focus on AI applications. This includes increasing interest in teletherapy platforms and mental health apps, which are attracting significant investment. AI-driven health tech is one of the hottest topics right now as acquirers seek to gain a competitive edge by incorporating these technologies into their existing marketing offerings, driving better insight and faster results for their clients. Overall, M&A activity in healthcare marketing is likely to remain very dynamic, with those agencies that have specialist disciplines, particularly in data and tech, or of scale, being the most sought-after. We’re seeing no reduction in appetite from buyers and, coupled with potential Capital Gains Tax changes on the horizon for those based in the UK, it’s a good time for independent agencies to consider going to market. Read more