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Building An Agency Of The Future

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Rob Reid's presentation at DMX 2016

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Building An Agency Of The Future

  1. 1. ! BUILDING AN AGENCY OF THE FUTURE DMX Dublin, 2016
  2. 2. D MX Dubl in, 2016 | advertisingmanda.com International M&A consultancy Founded 15 years ago & HQ in London Specialising in the digital & creative sectors Advising on growth & exit strategies and finding partners
  3. 3. D MX Dubl in, 2016 | advertisingmanda.com Seek Out Market Intelligence Understand The New Battlefields Focus On The Key Building Blocks Immerse In Tech & Startup Culture Try Alternative Business Models Know The Buyers & Valuation Methods
  4. 4. Market Intelligence Understanding The Marketplace !
  5. 5. D MX Dubl in, 2016 | advertisingmanda.com Global vs Local Perspective ★  Total global advertising expenditure predicted to grow at 4.7% in 2016 ★  In line with economic growth expectations and boosted by the quadrennial events ★  ‘Mature’ markets still contributing more to growth than ‘rising’ markets (US, China, UK) ★  European growth is sluggish at 2.9% ★  And that’s propped up by the UK at 5.5% ★  Ireland is predicted to be the second highest growth market this year at 7.9%
  6. 6. D MX Dubl in, 2016 | advertisingmanda.com Ad Spend By Country 44% 17% 11% 6% 6% 4% 3% 3% 3% 3% 2014 USA China Japan Germany UK Brazil France South Korea Australia Canada 44% 19% 10% 6% 6% 4% 3% 3% 3% 2% 2017 USA China Japan UK Germany Brazil France South Korea Australia Canada
  7. 7. D MX Dubl in, 2016 | advertisingmanda.com Ad Spend Growth By Region 4! 4.2! 2.6! -6! 4.1! 12.7! 4.7! 4.5! 2.9! 1.6! 4.7! 13.6! -10! -5! 0! 5! 10! 15! GLOBAL NORTH AMERICA WESTERN EUROPE C&EE ASIA PACIFIC LATIN AMERICA 2015 2016
  8. 8. D MX Dubl in, 2016 | advertisingmanda.com Digital Is Driving The Growth ★  Digital is predicted to be 26.5% of the global total ★  No 1 ad spend in 10 markets and in top 3 categories in nearly all markets ★  Principle media used (based on spend) in UK, Canada and Australia ★  18% growth in digital predicted in Ireland this year ★  So digital is driving nearly all global growth as a channel but also advances in tech ★  US will join this list in 2018 when digital is predicted to overtake TV
  9. 9. D MX Dubl in, 2016 | advertisingmanda.com Global Spend % Share By Medium TELEVISION NEWSPAPERS MAGAZINES RADIO CINEMA OUTDOOR DIGITAL TELEVISION NEWSPAPERS MAGAZINES RADIO CINEMA OUTDOOR DIGITAL 2015 2016 42.0 12.8 6.9 6.5 0.5 7.0 24.3 41.3 11.96.5 6.4 0.5 6.9 26.5
  10. 10. D MX Dubl in, 2016 | advertisingmanda.com And Mobile Is The Enabler ★  Mobile is the big story in digital ★  Last year it accounted for 25% of total digital spend in the US (eMarketer) ★  Predicted to rise to $65 billion by 2019 ★  That will be nearly 70% of total digital ★  Close to 29% of total media ★  Mobile growth in Ireland is predicted at 162% this year - over 50% of total digital spend
  11. 11. D MX Dubl in, 2016 | advertisingmanda.com “UK first country in world with 50% ad spend on digital media”
  12. 12. D MX Dubl in, 2016 | advertisingmanda.com Ad Spend Growth By Medium (US$m)
  13. 13. New Battlefields Get To Know These Trends !
  14. 14. D MX Dubl in, 2016 | advertisingmanda.com Battlefield – Customer Experience ★  CX is becoming a critical area ★  Marketing has grown from brand to market share to ‘end to end customer experience’ ★  Cross-functionally aligning all touch points – online and offline ★  Design thinking is increasingly important everywhere ★  CJ and UX are paramount to digital success ★  Experiential is re-born with mobile, social, content, location (MoSoCoLo) ★  Data analytics & insights should drive all activity ‘By 2020, the customer will manage 85% of its relationship with an enterprise without interacting with a human’ Gartner
  15. 15. D MX Dubl in, 2016 | advertisingmanda.com Battlefield – Platforms ★  IP and Platforms are becoming key agency differentiators ★  Convergence between Marcoms, Tech & SaaS ★  Challenge is building the right agency stack ★  20% growth in programmatic last year but also analytics, social, mobile publishing etc. ★  Yet still to be properly enhanced by marrying data and creative insights ★  OOH grew 14% driven by tech and advances in targeting and accountability
  16. 16. D MX Dubl in, 2016 | advertisingmanda.com Battlefield – Mobile ★  Mobile is the key driver – central or at the least integrated ★  A lot of the digital change that needs to happen in organisations is now mobile first ★  Social is in the fabric of everything – driven by mobile ★  Voracious appetite for content ★  22% growth in online video in 2015
  17. 17. Building Blocks To Maximise Value ‘The Magnificent 7’ !
  18. 18. D MX Dubl in, 2016 | advertisingmanda.com If you want to create real value If you want to motivate your best players If you want your agency to win & keep business If you want to make more profit to build something better If you want to maximise the value you’ve created & sell someday You need to build into your agency
  19. 19. D MX Dubl in, 2016 | advertisingmanda.com 1. BUSINESS MODEL ★  Robust, scalable & sustainable (RSS) 2. QUALITY CLIENTS ★  At least 75% of GP (Gross Profit or Margin) from international clients ★  No client more than 25% of GP ★  Min. 3 clients who have between 10-25% GP each ★  No client of less than 5% GP Agency Growth - The Magnificent 7
  20. 20. D MX Dubl in, 2016 | advertisingmanda.com 3. FINANCIAL SMARTS ★  Net Op Profit (OP) of c. 20% of GP ★  Payroll of no more than 60% of GP ★  EBIT per head of least €20k pp ★  FTE productivity of least €125k pp ★  Exec shareholders should take market rate remuneration ★  Net Current Assets to be equivalent to at least 3 months operating expenses ★  Track record for all above for at least 2 full years Agency Growth - The Magnificent 7
  21. 21. D MX Dubl in, 2016 | advertisingmanda.com 4. SIZE & GROWTH ★  Target 20% growth pa at gross (35% on the bottom line) ★  Min. 10% of GP investment in strong & focused new biz strategy ★  Assign owner + dedicated agency resource / budget to new biz! 5. OWNERS & LEADERS ★  Active owners / managers ★  Strong ‘second tier’ leadership team who meet regularly with real responsibility ★  Incentivised and ‘share optioned’ second tier ★  Clear roles, responsibilities & assessments Agency Growth - The Magnificent 7
  22. 22. D MX Dubl in, 2016 | advertisingmanda.com 6. POSITIONING & PROPOSITION «  Playing in the right parts of the field ★  Positioned to answer today & tomorrow’s issues ★  Compelling proposition 7. MUST HAVE SKILLS ★  Smith & Wesson beats 4 aces ★  FutureCasting trends to stay relevant for tomorrow ★  Aware of convergence of digital, content, mobile, platforms, tech ★  IPs, ‘own revenue’ if possible Agency Growth - The Magnificent 7
  23. 23. Tech & Startup Culture Impact On Digital Agencies !
  24. 24. D MX Dubl in, 2016 | advertisingmanda.com « Dramatic change in marketing departments coming down the line « Part trend watcher, part data scientist « They will ‘get’ technology for the first time « Integrating with the CTO and CIO « Agencies will have to align to solve the problems that these guys need solving « Uncovering the real issues that consumers face as businesses make the digital transition A New Breed of CMO
  25. 25. D MX Dubl in, 2016 | advertisingmanda.com « A requirement to solve detailed problems for clients « Opportunity for digital agencies to move further upstream « Where in the customer journey they can cut down on friction « A lot of the time these problems are fixed with a technology solution « So have the right staff who have these skills built into their DNA « Prototyping will be at the core of what digital agencies do Technical Innovation
  26. 26. D MX Dubl in, 2016 | advertisingmanda.com « Part of an eco system « Shared employee base « Back and forth between start ups and agencies « The work will become faster and more ittirative « Work with clients to innovate their company’s product and service offerings « Innovation labs & product incubators Infused Start Up Culture
  27. 27. Alternative Business Models Think Beyond Hourly Rates !
  28. 28. D MX Dubl in, 2016 | advertisingmanda.com « Procurement and legal love the phrase! « Essentially any work that an agency produces is owned by the client « No contractual provisions for agencies to retain ownership of the IP they create « Not even room for discussion in 99% of cases « Not the best business model to be stuck in as we’re in an age of innovation « The tyranny of the hourly rate Agency Business Model - ‘Work For Hire’
  29. 29. D MX Dubl in, 2016 | advertisingmanda.com « Agencies can completely transform business performance with just one idea « Yet only get rewarded by the number of man hours they can bill « Not by the amount of business value delivered « Plus digital is only settling in for a long ride – gradual shift from service to product « Cannes Lions already has ‘innovation’ and ‘product design’ categories ‘Work For Hire’ - What’s The Problem?
  30. 30. D MX Dubl in, 2016 | advertisingmanda.com ! « Sector moving from ‘advertising creativity’ to ‘marketing invention’ « Shift from service to product means new remuneration models are inevitable « Otherwise little to no innovation « Impossible if you’re constantly thinking about selling hours « IP, platforms, licensing, profit share « Hybid of hourly rate with performance uplift and or mix of the above Is There A Realistic Alternative?
  31. 31. Buyers & Valuation Models Global M&A Market !
  32. 32. D MX Dubl in, 2016 | advertisingmanda.com WPP! Publicis! Dentsu Aegis! Omnicom! IPG! Blue Focus! Havas! MDC Partners! CHR Group! Hakuhodo! Communisis! Next Fifteen! STW Comms! Mission Marketing Group! 2014 53 23 20 16 12 11 8 8 6 6 4 4 4 4 Leading Acquirers 2014 vs 2015 WPP Dentsu Publicis Havas Omnicom Accenture Deloitte Touche Tohmatsu H.I.G. Capital IPG Ruder Finn 2015 38 36 21 12 7 6 5 4 4 4
  33. 33. D MX Dubl in, 2016 | advertisingmanda.com 2015 Acquisitions By Region 412 30 119 190 25 7 16 180 North America South America UK Western Europe Eastern Europe Middle East APAC Africa
  34. 34. D MX Dubl in, 2016 | advertisingmanda.com 2015 Acquisitions By Sector Full Service Digital Integrated Public Relations Website Design & Build Mobile Branding Direct Marketing Advertising 101 76 75 61 57 53 47 44 Events & Experiential 43 Creative 42
  35. 35. D MX Dubl in, 2016 | advertisingmanda.com 2013- 2015 ‘Usual Suspects’
  36. 36. D MX Dubl in, 2016 | advertisingmanda.com A total of 116 deals completed in 2015 with 52% of these being completed in the second half of the year. SOURCE: Mergermarket, Capital IQ and Clarity research as at 31 December 2015 Transactions 2008 –2015
  37. 37. D MX Dubl in, 2016 | advertisingmanda.com Transactions 2008 –2015 WPP continues to dominate M&A activity by volume, completing 38% of the deals in 2015, with Dentsu taking over from Publicis as the second most active network. SOURCE: Mergermarket, Capital IQ and Clarity research as at 31 December 2015
  38. 38. D MX Dubl in, 2016 | advertisingmanda.com Omnicom Leads North America, WPP Dominates Europe
  39. 39. D MX Dubl in, 2016 | advertisingmanda.com Trading Multiples Close To 8 Year High Source: Capital IQ and Clarity research as at 31 December 2015
  40. 40. D MX Dubl in, 2016 | advertisingmanda.com Strategy Consulting Technology Digital Auditing Outsourcing Challengers … Consultancy & Accountancy
  41. 41. D MX Dubl in, 2016 | advertisingmanda.com Challengers … Private Equity
  42. 42. D MX Dubl in, 2016 | advertisingmanda.com International independents Regional networks Clients Different skills And … Significant Others
  43. 43. D MX Dubl in, 2016 | advertisingmanda.com And Of Course… The Media
  44. 44. D MX Dubl in, 2016 | advertisingmanda.com Finally… Global ‘Hubs’
  45. 45. D MX Dubl in, 2016 | advertisingmanda.com ‘Real Time Real World’ Valuations «  Agencies are valued with a multiple that reflects 1) ROI and 2) Supply & Demand «  Talent, client relationships, innovation & increasingly technology «  Based on impact over no more than 5 years to the acquirer «  IPs or proprietary platforms - valued on future revenue contribution vs. investment «  Based on last ‘adjusted’ audited year + current year forecast (EBIT) + surplus working capital «  Every acquirer has their own style of valuation / earn out models
  46. 46. D MX Dubl in, 2016 | advertisingmanda.com M&A Seismic Changes 2016 « Macro economics – Russia / China « Geo political issues - MENA « Networks raison d’etre - global clients / growth by acquisitions / need to cut costs « Management Consultants incursion « WPP - client agencies / data & programmatic / media partnerships / cost cutting « Publicis - client centric hubs / Sapient « Dentsu Aegis - fast tracking growth through M&A « East to West – Blue Focus, Innocean, Cheil etc. « Growth of ‘hubs’ – WPP Campus etc.
  47. 47. THANK YOU rob.reid@advertisingmanda.com !

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