Services: Green Square

Following the profit warning at S4 Capital, Green Square’s Nick Berry warns growing agencies not to ignore the necessary work of building support systems and infrastructure. The revelations about ‘chaotic accounting’ at S4 Capital last month not only dampened its share price and future growth forecasts, but also delivered a timely reminder to businesses of all sizes that it is worth holding up a mirror to your own systems and operations and asking if they are fit for purpose. S4 has since hired Colin Day as chair of its audit and risk committee and promoted Chris Martin to chief operating officer – the first of several appointments that Sir Martin Sorrell has stated are the first steps to rebuilding confidence. As a youngster building my first company, I was once told ‘business is easy except for the clients and staff.’ This is pretty much spot on, but I would add a further challenge to the mix in the form of systems. Edwards Deming, a renowned American engineer and businessman from the 20th century, claimed “94% of problems in business are systems-driven, but only 6% are people-driven.“ I would argue that is possibly over the top for the people-centric, service-focused marketing sector, but it still highlights that people are often restricted by the systems and processes they are bound by. Within Green Square we are heading toward a hundred years of combined C-suite experience in the hot seat. We all have war stories regarding system implementations and how poor process has inhibited growth at certain stages. This experience is vital as we assist with businesses in considering their M&A options and aiming to attain maximum value. Most businesses work hard to preserve a swan-like appearance, where serenity on the surface is upheld by frantic activity below the water. Things were even more stretched at S4, as the auditors discovered when assessing their finance operations. Consequently, the failure of systems and processes to evidence a robust audit trail and reporting resulted in the late filing of accounts. Many marketing and creative agencies focus all their attention on being brilliant at what they do while ignoring the back-office platform. This can be foolhardy as the former can only scale and blossom based on the latter being robust. Systems and the ability to scale become critical in businesses approaching 50 staff and above. This is when small business finance and resource management tools become inadequate. In The Drum’s recent Independent Agency Census 2022, there are six financial factors on which they assess performance: turnover, turnover growth, turnover percentage growth, turnover per head, gross profit and gross profit growth. These factors are clearly fundamental to the underlying health of any business, but on their own don’t necessarily allow for a view of how sustainable and scalable a company’s operations are. This is often linked to sales processes, account management, service delivery, client experience, commercial practice and staff churn. These factors and many others are all inherently linked to systems and processes being strong and unified from the front to the back of house. As agencies get momentum and start to scale, they often fall into the trap of seeing the solution to every problem as more people. In the words of Michael Gerber, the American Author who is evangelical about processes in businesses, “systems run the business and people run the systems” – so throwing more bodies at a problem as opposed to investing in the underlying systems is rarely the right approach. Entrepreneurs often by their very nature hate the detail and complexity required for building operational systems. They get frustrated and see it as a waste of time and money. But effective process not only reduces reliance on people and removes single points of failure, but it also relieves stress levels and increases the time available for creativity and innovation. From an M&A perspective, strong systems mean the knowledge and ability to ‘get things done’ are not tied up within a few people. This is a huge value driver in the eyes of an acquirer. People are essential, but when blended with quality operations, you achieve a secret sauce that is attractive to buyers and can often differentiate you from the competition. As an example, it is reasonable to expect a business to have access to key management data that ultimately helps to drive decisions and profitability. This includes being able to assess the profit margin of individual clients, projects and service lines. But it is surprising how few businesses have this readily to hand. When analyzing this for due diligence, it often becomes apparent that there are significant imbalances and certain commercial relationships or services that add limited value. Other processes around recruitment, onboarding staff and ongoing management of HR matters should also be systemized in a way that supports your culture positively and makes you stand out from the competition, attracting and keeping the best talent available. There is strong evidence to prove that haphazard approaches to hiring and inducting staff, along with ongoing employee engagement, will reduce the longevity of tenure and increase staff churn. A buyer won’t expect you to have the same systems or approach as they do, but if they see a culture that is underpinned with robust process and data to support effective decision-making, they will view you as a mature outfit with a growth-focused management ethos. On the other hand, when there is a fundamental process issue as with S4, it can take a long time to fix and rebuild reputation. Sorrell has not only admitted the slump in S4’s share price will affect acquisition activity, but also conceded “that clients and potential clients might be less inclined to work with the company in the future, given the chaos,“ according to The Times. Further to this admission and following the new appointments, Sorrell said: “In a way we’re starting again, not from where we were at the beginning, which was zero, but we’re starting again to build that trust and confidence having gone through an unacceptable event.” This proves that internal systems can be as important for success as being on the bleeding edge of a new trend or having a great sales strategy, so investing time and money in systems can yield great returns in the long run, as well as being a powerful lever to pull on when considering M&A. Investment in operations needs to be driven from the top, and those that don’t will suffer in the long run. In the words of the American author Orison Swett Marden, “a good system shortens the road to the goal.“ Read more  

Mergers and acquisitions can be messy affairs. And if you’ve been following the saga of M&C Saatchi you’ll have noticed almost daily alerts on the two suitors chasing it for acquisition. The creative agency, which seems not entirely keen on the possibility of a sale, currently has bids from two companies—with no conclusion in sight after eight months of dealings. M&C Saatchi was founded in 1995 by brothers Maurice and Charles Saatchi, Jeremy Sinclair, Bill Muirhead and David Kershaw—following an acrimonious split with Publicis-owned Saatchi & Saatchi. It currently has a client list that includes Adidas, PepsiCo, Disney, Heineken, the Commonwealth Bank and Uber—not to mention a lucrative contract with the British government. A hostile reception Since January, the agency has been the subject of a hostile takeover attempt by AdvancedAdvT Limited (AdvT), which is led by Vindoka ‘Vin’ Murria. At the time, Murria was M&C’s deputy chair. AdvT argued the acquisition would be “an opportunity to build a data, analytics and digitally focused creative marketing business with a strong balance sheet and additional management expertise.” In June, M&C directors felt it was “not appropriate” for Murria to be re-elected to the board. She was removed from her position as a result. Murria and AdvT together own 22.3% of M&C Saatchi, valued at around $307 million (253.6 million pounds). But that number was eclipsed when another competitor entered the fray: Next 15 Communications. Fresh off the merger with Engine Group, Next 15 set its sights on M&C Saatchi. An offer of $375 million (310 million pounds) was agreed upon as the preferred offer by the board. But Murria continued her fight: “Our final offer has greater potential to deliver shareholders and employees faster growth and significant value creation,” she said, adding that Next 15 was “a credible buyer of M&C Saatchi.” In its investor presentation, Next 15 said it would create an “opportunity to build a global growth consulting group that can offer a compelling alternative to the big four consulting and marketing services groups. A group that leverages top-flight creativity, technology, data, business consulting and digital marketing to deliver meaningful change.” A slide from suitor Next 15’s investor presentationNext 15 Next 15 said it would offer complementary client bases, an “enhanced” public sector offering and clearer focus on data and analytics. It would also invest across EMEA and APAC, as well as strengthen eCommerce, paid media, demand/lead generation and strategic consulting services. Unlike AdvT, which during the last AGM voted against the reappointment of Gareth Davis and non-executive Lisa Gordon as directors, Next 15 has placed “great importance” on retaining existing management and employees—and revealed that it had already held some initial “high level” planning and post-merger discussions. The future business would be led by a team featuring key people from both Next 15 and M&C Saatchi, the investor proposal revealed. Stalling the outcome But in June, another wrench was thrown into the deal. M&C Saatchi directors argued the deal shouldn’t go forward. “The M&C Saatchi Directors, who have been so advised by Numis and Liberum as to the financial terms of the Next 15 Offer, no longer consider the terms of the Next 15 Offer to be fair and reasonable solely on the basis of the deterioration in value of Next 15 Shares since the Announcement Date.” “We reached agreement with the board and executive team of M&C Saatchi after extensive negotiation and believe our offer is full and fair,” said Next 15 CEO Tim Dyson. “We do not believe that the recent market volatility undermines the fundamental proposition of this transaction.” “We are focused on our very successful strategy of delivering meaningful change for our clients—and accelerating our journey of simplification, digitization and connection.” Moray MacLennan, chief executive officer for M&C Saatchi The two parties were then set to meet August 19 to vote on the bid. But following M&C’s strong half-year results and the tumble in Next 15 shares, another disparity emerged. M&C Saatchi reported a 10% growth in revenue year-on-year with an anticipated pre-tax profit of around $37.5 million (31 million pounds) by the end of 2022. The better-than-expected results are anticipated to continue through 2022, with heightened demand for M&C’s specialist services in the U.K., Americas and Asia. “We are focused on our very successful strategy of delivering meaningful change for our clients and accelerating our journey of simplification, digitization and connection,” Moray MacLennan, chief executive officer for M&C Saatchi, told Adweek. “Our recent client wins, including PepsiCo, Barclays, and Samsung, reflect the strength of our approach. We remain confident that we will continue on this trajectory.” So that leaves three potential outcomes: AdvT wins. Next 15 wins. Or M&C Saatchi remains independent. “I suspect Murria wanted to get it cheap, shift out the old guard and bring new people in, reorganize, make some acquisitions and then flip it on or potentially list it again,” explained Barry Dudley, a partner at media and marketing consultancy Green Square. “Meanwhile, Next 15 sees it as a business that is performing very well, that perhaps needs a little help to take it forward—but wants to largely keep it going with the plans existing management have in place.” So, more time is added to the clock. Read more

With high wage costs and competition for talent hitting agency revenues, a new study from the World Federation of Advertisers (WFA) suggests the sector is facing its “worst-ever crisis” in recruitment. In a survey by the WFA and media advisory MediaSense, 85% of agencies reported that they faced a ”high” scarcity of talent while 54% of agencies agreed that the sector was undergoing its ”worst” hiring crisis ever. The findings come after last week’s profit warning from S4 Capital, which company spokespeople blamed in part on rising staff costs. The WFA study – Media’s Got Talent? – surveyed 400 executives across media, adtech, agencies and brands, with its director of global media services Matt Green telling The Drum that the findings showed how agencies are particularly badly affected by competition for recruits. ”The talent crisis is affecting all parts of the industry and clients are feeling the pinch within their internal global media teams,” he says. ”But, as this research shows, the impact is particularly pronounced on the agency side and this is having a profound impact on the ability of clients to execute campaigns globally. ”While the industry couldn’t have predicted a global pandemic, this study also identifies intractable, but more predictable, issues that have had a dramatic impact, including training, talent management and even a perceived lack of purpose. These factors need to be addressed for the health of all our businesses and in the interest of a stronger client-agency dynamic.” Why are agency businesses in a talent crisis? The survey found that respondents blamed poor training (76%), talent management (68%), poor client behavior (61%) and competition from tech firms (58%) as the primary factors behind the crisis. Others pointed to the industry’s notoriously poor work-life balance for staff (76%), a lack of flexibility for staff (73%) and opaque career paths (72%) as barriers to swifter recruitment. 67% of all respondents reported that a lack of staff and the higher cost of hiring talent that is available were major barriers to business growth. “We know the impact this has on future growth, so it is vital that businesses start to invest in talent in a more meaningful way, ensuring they strike a better balance between specialists and all-rounders, youth and experience, expertise and attitude,“ says Gerry D’Angelo, vice-president of global media at Procter & Gamble. How does this limit business growth? The impact of the rising cost of staff (and the outright lack of staff) was most evident in last week’s profit warning from S4 Capital. The parent company of digital agency Media.Monks told investors that its wage bill had risen high enough that it needed to reassess its operating margins. In response, it has put in place a hiring freeze and lowered its profit expectations by almost $50m. According to Forrester’s global agency analyst, Jay Pattisall, agency networks and holding companies (S4 included) have been particularly exposed to fluctuations in the North American labor market. ”Digital networks, holding companies and consultancies range between 50% and 75% of their revenues from North America,” he explains. ”That does make them susceptible to the North American labor market.” Competition for skilled recruits in digital roles has been especially fierce, he notes, but those roles are key to businesses growing their digital transformation or digital media offerings. ”As agencies are competing, they’re competing for digital talent. That falls in the wheelhouse of Media.Monks and its core set of competencies.” That side of the business, he says, ”is having the most acute time attracting talent”. S4 may be more exposed to rising staff costs because the company had grown through multiple acquisitions, he says. Agencies that had recruited new staff directly, rather than absorbing teams from businesses they had acquired, would typically be able to exercise closer control over wage bills. Interpublic Group and Publicis Groupe both reported that they had hired thousands of new recruits last year, but each increased their labor costs by less than 2%. Pattisall says: ”When they grow, they’re buying or acquiring growth. But they’re also acquiring the necessity to maintain a labor force.” Barry Dudley, a partner at consultancy GreenSquare, tells The Drum that failing to keep a lid on staff costs would damage investor confidence in S4. ”It is suffering from a set of external factors that are hitting pretty much all businesses at the moment. But it has added a few self-inflicted wounds on top of that with its internal accounting and financial controls not keeping pace with its rapid growth. Perhaps this was again part of the reason for the latest share price drop – it’s one thing to see revenues shift up and down in forecasts, but your staff costs are not unknowns even if it is seeing upward pressure right now.” This could, in turn, force its leadership to rethink S4’s aggressive acquisition strategy, says Dudley. ”To date, it has ‘merged’ with businesses by paying 50% of the price for a business in cash and 50% in S4’s equity. The equity portion has just got a lot more expensive for S4 with a share price at £1.30 as I write, versus the £8.78 at its peak last October.” Read more

S4 Capital has been forced to push back the release of its full-year 2021 results for the second time this month, leading its share price to plunge 35%. Here’s what industry analysts have to say. S4 Capital, the advertising business owned by Sir Martin Sorrell, lost over a third of its market value after the company postponed its 2021 full-year financial results. On March 31, the company issued a statement explaining that auditors were not able to sign-off on the results, mere hours before they were slated to be made public. According to the statement, PricewaterhouseCoopers auditors alerted S4 leadership around midday GMT that they were “unable to complete the work necessary” to publish the earnings information. “As a result,” said S4 in its statement, “the company will release its preliminary results for 2021 as soon as PwC has completed its work.” The notice clarified that S4 still expects the year’s results to be “within the range of market expectations” and that the firm witnessed strong performance in the first two months of 2022. Even with this caveat, shares plummeted in the aftermath of the announcement, falling a total of 35% by the time the stock market closed in London today, wiping almost £950m ($1.25bn) off S4’s value. It marked the second time this month that the company has delayed publishing its results. On March 1, company leadership said that auditors required an extension on its audit, citing delays caused by Covid19-related resource bottlenecks. However, it was noted by analysts that the reasons cited for this delay were not linked to staffing problems or Covid-19 disruption. What the analysts are saying: Historical patterns suggest that when earnings are delayed, behind-the-scenes drama may be underway. “S4 has been extremely aggressive in acquisitions over recent years, and it is more than likely that there’s a debate over some of the intangibles there,“ said Greg Paull, co-founder and principal at global marketing consultancy R3. “PwC typically wouldn’t hold something back like this unless there was a good reason for it.” Paull predicts that declining share prices will slow organic growth and require the company to focus on developing its existing business. “[S4 has] used the past three years to bring in some amazing assets – now is its moment to show greater synergies between them.” Like Paull, Barry Dudley, partner at finance advisory Green Square, said the recent spate of acquisition might have added to PwC’s workload. It has recently brought 4 Mile Analytics, content marketing agency Miyagi, creative agency Cashmere and digital transformation services Zemoga into the group. “I certainly wouldn’t want to be the PwC partner responsible for the S4 audit as they must have experienced sensations similar to being in a jet engine testing wind tunnel when they last caught up with Sir Martin,” said Dudley. ”We have seen resourcing challenges with accountants, lawyers and other advisors on deals in recent months – primarily due to Covid — which is what appears to be going on at PwC. But to be side-swiped at the last minute like this does understandably raise suspicions. As S4 has continued to be highly acquisitive, there will have been a lot for PwC to grapple with. S4 has said that it expected its 2021 results to ’remain within the range of market expectations’, so I sincerely hope it’s just another side-effect of Covid that is behind all of this.” Conor O’Shea, analyst at Kepler Cheuvreux, told Bloomberg: “While it would be too much to say that this has echoes of Wirecard, at first sight it may be similar to the accounting issues that besieged Atos in 2021.” IT firm Atos saw its share price slump last April after it was forced to delay its finance update. It said accountants had found problems with financial reporting, “leading to several accounting errors,” and it had brought in external firms to investigate if this had led to misreporting elsewhere. The delay to publishing its result was as a result of missed deadline to complete that investigation. When S4’s 2021 results will be made available remains unclear. Morgan Stanley analyst Omar Sheikh said the lack of a revised date suggests the problem is “non-trivial.” S4 has been listed on the London Stock Exchange since 2016 and saw its acme in the market in August of last year when it hit a market cap of about $6.5bn. S4 share prices have dropped since then as the company has focused on investing more heavily in technology and staffed up post-pandemic. Read More

The deal, set to be completed in the coming days, will see the break up of the creative agency network The U.K. sector of Engine Group is set to be sold to communications group Next15. The sale has been ongoing for several months since Sky News first reported that its owners, Lake Capital, had appointed bank Lazards to find a buyer for the U.K. business—with an asking price of around £100 million. While it was preferable that the whole business would be bought as one, Next15 will buy the British part with talks ongoing about the U.S side. The future of the APAC section is unclear if both are sold separately. Adweek has spoken to four sources—each with knowledge of the deal—and it is understood that the sale will be confirmed before the end of February. Engine works with some of the U.K.’s biggest consumer brands, including baking brand Warburtons. Others on its blue-chip client list include the Royal Navy, Red Bull, Money Supermarket, AstraZeneca and telecoms provider Sky. It has a structure across three pillars: creative, communications and transformation. An uncertain future Next 15 is an AIM-listed tech and data-driven network with operations across Europe, North America and Asia Pacific operating agencies such as Elvis, Odd, Velocity and Mighty Social. “This structure is important because while the three units work together, they also have their own distinctive propositions and skill sets,” Tony Walford, partner for merger and acquisition consultancy Green Square, wrote for Adweek in July 2021. “This means the group could easily be split into the separate disciplines if needed, making it more attractive to buyers not looking to buy a group but a set of skills or competencies.” He added, “It is the only U.K. indie of scale still left, which in itself makes it a tasty proposition for any buyer, especially in a landscape in which the old model of legacy holding groups is coming increasingly under question.” When approached for comment, Next 15 said it had a rule not to discuss acquisitions. A spokesperson for Engine Group also declined to comment. At the end of January, while announcing organic growth of 24% year on year for its third quarter, Tim Dyson, Next 15’s chief executive, said: “Our performance in Q4 was again strong, showing that there has been no change in demand for our wide range of growth-enhancing services as market challenges and disruption across industries continue. It is further validation of our model that growth was strong across all segments and geographies. We look forward to updating investors in greater detail when we announce our final results in April, including how we are accelerating investment in talent and product development to continue to innovate for clients and drive longer term growth.” Meanwhile, that same month, the chief executive of Engine Creative, Ete Davies, left the agency after five years. Updated: In response to this story, Next 15 released the following statement to shareholders admitting that talks with Engine U.K. were underway: “Next Fifteen Communications Group plc … the tech and data-driven growth consultancy, notes the recent press speculation in relation to the potential acquisition of Engine UK. “In line with its strategy, the company regularly assesses a number of potential acquisition opportunities at any given time. The company confirms that it is in discussions with Engine UK and its owners. “Shareholders are advised that there can be no certainty that any transaction will proceed to completion or as to how any transaction would be structured. “A further announcement will be made in due course, if appropriate.” Read more Tony’s article July 2021

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

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

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