Do Business Well

The Road Ahead Is Curvy and Treacherous, and Good Road Maps Are in Short Supply

Advertising Agencies

Because of the extensive consolidation that has taken place in the last decade, further consolidation will take place at a slower rate in the immediate future. Part of this is a reaction to the government’s closer scrutiny of the mergers because of the Enron debacle. A pause in consolidation at this point is also good because it will give the acquirers an opportunity to digest the new properties and position them efficiently within the corporate umbrella.

Even at a slower pace, there will be more mergers and acquisitions, but it is doubtful there will be another major holding company formed that compares with the current Big Four.

The bigger question regarding structure is whether the four holding companies will remain intact. I don’t think they will. These are all global conglomerates made up of dozens of different companies of different sizes, different cultures, and different personalities. Not all marriages are made in heaven, no matter how happy the couple looked on their wedding day.

Many of these acquisitions took place because the former owners were ready to retire and were offered an opportunity to get an equitable compensation for their ownership. The operations acquired under these circumstances are more likely to remain within the holding companies, running under new management.

The situation is different for operations with a strong entrepreneurial leader who agreed to the acquisition because it would give the company access to more capital or to bigger clients. It is not unusual for a management like this to feel bridled by a corporate hierarchy. The former owners might choose to buy themselves back from the parent. This is especially true if a declining stock market has lowered the value of the subsidiary. We can almost guarantee there will be circumstances like these in the next couple of years. Above all, sometimes an acquired unit simply doesn’t fit into the corporate puzzle the way it appeared before the merger.

It also isn’t impossible that we might see a major agency unit break away from its parent holding company in the near future. This could be an advertising agency with a strong CEO who doesn’t fit into the corporate structure. It is less likely to happen with a company that was publicly held before the acquisition, but defection_shave occurred in other industries, and they could also happen in advertising.

It is also likely that a nonadvertising subsidiary might break away because it did not benefit from corporate ownership. This is all part of life in the publicly held lane.

More likely, though, is that it will become more common for clients to dictate the structure and ownership of their advertising agencies. Rather than have an account simply move from one agency to another, we can anticipate a situation in which a major client dissatisfied with its holding company relationship might engineer the defection of its agency staff and underwrite the formation of a new agency. This has already happened in the past because of perceived client conflict, and it will happen in the future as long as the holding companies are handling hundreds of brands and companies.

These freestanding, client-sponsored agencies will have no need to be part of any of the holding companies. The holding companies really will have no advantages to offer these breakaway shops. The logical question to ask is whether clients enjoy any benefits by doing business with an advertising agency or any other marketing services unit of a holding company. I don’t think so.

Possibly related posts: (automatically generated)
Does Advertising have a Future?

• I Made My Own Advertising Work part 3
• Expenditure on Advertising: Would I have made more Profit if I had Spent less on Advertising? (1-9)
• Expenditure on Advertising: Would I have made more Profit if I had Spent less on Advertising? (10-18)
• BRINGING E-MARKETING MIX TOGETHER
• I Made My Own Advertising Work part 1
• Digital Television
• The Language of Net Advertising
• It takes time so have faith: Six simple steps ( 3&4)
• Five Predictions for trends in Internet Marketing : WEBPROMOTE
• Advertising Loves to Entertain; Its Real Objective Should Be to Generate Excitement

4 Comments »