At the beginning of the year, John Aldred, TMT Relationship Director at Barclays, detailed how marketing agencies need to develop their digital capabilities in order to grow with the evolving market. As the year is now coming to a close, Lorraine Ruckstuhl, TMT Corporate Director at Barclays, highlights how the market has developed throughout the year and how smaller agencies can keep pace with their larger competitors and boost their position in the market.
Big deals still being made
The global players in the market continued to be very active over the last year with regards to M&A activity. Publicis Groupe hit the headlines in September with the acquisition of LBi, strengthening its growing digital offering which already accounts for 35 per cent of the company’s revenue. This followed shortly after WPP acquired AKQA, emphasising the race to become the largest agency with outstanding digital expertise.
Niche players can find themselves at an advantage
However, acquisitions are often not an option for smaller agencies. Some agencies are therefore choosing to specialise and focus on one core skill in order to demonstrate their creative abilities and win business as experts in their field. This is where niche agencies can also find themselves in an advantageous position, as was the case with Adam & Eve. Omnicom acquired Adam & Eve for a significant price at a relatively early stage in the company’s growth. Perhaps this was a special case thanks to the big brand names on Adam & Eve’s client roster, or perhaps it was part of a bigger trend and we will see more specialist agencies being acquired at an earlier stage than previously. For similar niche players there could be greater opportunities for acquisition as these agencies often have skills and expertise that are desirable to their larger counterparts. For businesses considering this option, it’s essential to discuss plans with your financial partner as early in the process as possible – this can help ensure the books are balanced and in order, making the company as attractive as possible to potential buyers when the time comes.
The move from retainers to projects
As 2012 has progressed, agencies of all sizes have had to adjust to dealing with more short term projects and less retainers as clients look to get smarter with their money. On the surface, fewer retained clients can seem worrying but this actually presents a number of opportunities, especially for smaller agencies that don’t have the capacity to deliver all aspects of a big brand campaign. For full-service agencies, this trend is forcing them to strive even more for success in delivering an integrated campaign to ensure they are considering all aspects of the brand’s marketing communications. Equally, it gives competing agencies the ability to pitch for project work that might traditionally have been assigned to the retained agency. With a general shift from retainers to projects, opportunities are opening up to the smaller players that may not have otherwise been available, as well as keeping the retained agency on their toes.
However, whatever the situation, this trend also presents financial challenges and it’s vital that firms are prepared for this. Having to pay out to partners, staff and external parties for projects immediately can potentially put pressure on an agency’s cash flow, which could hinder them when committing to this type of work. With short term working capital facilities available, this could significantly help smaller agencies that wish to take on more project work.
The economic climate throughout the year has meant that smaller agencies need to be nimble to ensure their route to growth makes business sense, and having the right financial partner in place is key to this. Whatever the plan, this partner should be able to provide financial acumen and a flexible bespoke plan, as well as market knowledge, in order to fully support agencies in successfully growing their business. By articulating early on what this growth strategy looks like with the agency’s bank, it’s possible to ensure the right financial support is in place to safeguard existing assets and grow successfully.
As smaller agencies become more able to compete with the larger players, identifying the right financing gives them the ability to mature with the market and take on new challenges. Working with a trusted financial partner who understands the intricacies and shifting dynamics of the marketing industry can be invaluable to businesses looking to grow or adapt in the current climate. Agencies need to identify the greatest opportunities of growth that are available to them and carve the best path to success.
Contributor
"Lorraine Ruckstuhl is Corporate Director of the Technology, Media & Telecoms team at Barclays. "
