Who'd be a holding company chief exec?
Running one of the big four is a tough job, especially when you understand how analysts look at the market. ID Comms chief executive David Indo explains why a big media pitch win offers a get out of jail card.
Even in the good times being chief executive of a big holding company is tough. Except we aren’t in those times. Agencies need to reframe their offer, battle off the consultants and appeal to clients who are changing what they want from external partners.
And there’s much less room to behave in a way that allows them to cover up their strategic challenges through additional media income.
All of which makes life hard for holding company CEOs – they are well rewarded so don’t feel too sorry for them – but it’s particularly challenging for the new kids on the block, who don’t have decades of credibility with the analyst market. WPP has been through the mill and now Publicis is getting its turn in the spotlight.
In the wake of its poor recent results, analysts were asking whether Publicis Groupe has over-extended with its Sapient and Epsilon purchases. The news looked gloomy for a couple of days but then the company pulled a rabbit out of the bag – a big win on the Disney media pitch.
Suddenly the market stopped considering its integration issues and said excellent work. The share price went back to the top of the roller coaster and everyone was happy again.
Except of course, it’s not that simple. Because the challenges of integrating two tech giants are not solved by even the biggest media pitch win, be it Disney in 2019 or GSK in 2018.
Part of the issue is the way that analysts – the experts who advise stock market investors – monitor the market. Understandably, they can’t cover every single pitch, in every discipline, in every market. So, they look at the big ones: the billion-dollar pitches that make a real difference to billings for even the biggest company.
Except that the billion-dollar pitches are the toughest ones to win. The ones with the brutal commercial terms that make the agency CFO’s eyes water and the ones that often have the smallest margins.
Win a billion-dollar media pitch and your share price will rise, even if the (undisclosed) terms on which you win it are onerous and likely to mean little profit (or worse) once the account has fully bedded in over a couple of years.
What really boosts an agency holding company business is the slow and steady accumulation of local and mid-size accounts, wins that pay a proper rate for agency services. But the analysts rarely take note of this kind of momentum because it’s easier to follow the big account battles that get so much attention in the trade and business press.
The fact is that it’s extremely rare that one agency can offer so much advantage in terms of talent, tools and insight to a billion-dollar account that they will be able to charge a margin that matches their business average.
Nevertheless, it is possible that a holding company could decide to win at all costs; to make promises that are going to be expensive in order to mask more fundamental challenges to the business.
A cynic would say that such an action is okay if it buys you the time to sort out the business problem. But what agencies face is not an internal issue but a fundamental reshaping of the marketplace in which they work.
Buying business is just that and while it will help boost the share price for a few days, it’s an expensive price to pay.
This article was published on The Drum on 13 December 2019.