For decades the ad world has been dominated by the traditional ad holding companies, built originally on the big Madison Avenue creative agencies and then enlarged as they bought back the media independents that broke away in the 1970s and 80s.
Sir Martin Sorrell’s WPP led the charge as it acquired JWT, Ogilvy (in a bitter fight with David Ogilvy), Wunderman, AKQA, Grey and Y&R. Essentially if it moved Sorrell bought it, sensible enough as his strategy was the be the biggest, just as it had been in the brief global heyday of the Saatchi brothers where he had been CFO.
That remains largely the map although it’s the media agencies bringing in most of the lucre (WPP has since merged most of its creative agencies apart from Ogilvy into the one-time tech specialist VML.) But, on the lucre front, the problem is there isn’t enough of it.
Ad Age reckons the ad holding companies are increasing their revenues by 5% annually at best (Publicis followed by Omnicom) with the others (chiefly WPP, IPG and Dentsu) struggling. Accenture Song is reckoned to be the biggest by revenue after WPP but much of that surely consists of the hotchpotch of tech and design companies Accenture bought before Droga5.
IPG, or Interpublic as it still sometimes is, was the first ad holding company, built by one Marion Harper (a bloke) on the back of McCann. But of late, under Philippe Krakowsky who succeeded long-term boss, Michael Roth, it’s been struggling.
Former CFO Krakowsky has sold Hill Holliday and Deutsch New York to marketing services group Attivo Group, merged Tierney with Carmichael Lynch and folded data-led creative agency Performance Art into McCann. It still has FCB and the Martin Agency alongside two biggish media agencies in Initiative and UM. But now it looks as though one-time digital flagship R/GA (above) may be sold, with TCS Interactive the likely buyer.
TCS is an interesting one, an offshoot of the giant Tata Consultancy Services, revenue of $29bn against WPP’s $18bn. So another Accenture in effect. And one of the leading lights of TCS Interactive is Andrew Essex, a co-founder of Droga5.
R/GA has struggled in part because tech clients have cut back, a problem for all the ad holding groups although Publicis seems to have ridden this better than most. But R/GA remains a potent brand in adland (for those who still value such things.)
As holding group bosses, including Krakowsky, focus on shareholder value to keep themselves out of the clutches of acquirers (or maybe make themselves more attractive to acquirers) big tech-led outfits like TCS are the most likely candidates to bring the changes that the slow-growth sector surely needs. Private Equity companies, who seem to have a limitless appetite for most businesses, have, so far, largely steered clear apart from backing smaller entities.
WPP with a current market value of £8bn ($10bn), against a high of £20bn plus a few years back, has been a sitting duck for a big P/E firm for years now but the backdrop of decline in non-tech ad agencies seems to be putting them off. The P/E formula of loading businesses with debt while cutting everything in sight is hardly what WPP and its peers require. If anything it’s more investment not less.
A TCS deal for IPG’s R/GA may be a sign of how adland might change through 2024.
