Last top 10 Brazilian indie Neogama sells out to Publicis Groupe, not BBH

July 4, 2012

It seems that months-long negotiations over who will own the controlling stake in fashionable Brazilian agency Neogama BBH (see my earlier post here) are now completed. So says the Brazilian trade press.

And the answer, shortly to be announced on the French Bourse, is: Publicis Groupe. Not BBH.

Do such technicalities matter, given that all these agencies are part of the same, happy, family? Well, yes they do. There’s more for micro-network BBH in this award-winning agency than a 35% stake.

Neogama’s biggest single client is burgeoning Brazilian bank Bradesco, but the agency also plays an important role in servicing BBH global clients such as Unilever and Diageo.

As is well known, Publicis Groupe is essentially Procter & Gamble-aligned. The only reason BBH, and therefore Neogama BBH, is permitted to handle Unilever business is a ring-fencing 51% stake in BBH held by its senior staff, chiefly group chairman Nigel Bogle.

If Publicis Groupe has directly bought out Neogama BBH, which it appears to have done, what will happen to that sizeable chunk of Unilever business? That is the question – as posed by rival Unilever agencies WPP, Interpublic and Omnicom.

Neogama’s principal shareholder is its flamboyant founder, Alexandre Gama. His is the only top-ten agency Brazilian agency that, up to now, has managed to remain independent. His motives for selling out? He has been running his agency a long time – over 12 years. Bradesco is overweight as the main client. And money, yes money. Gama’s services are highly in demand, and he knows it. He has been hawking his stake about for some time – in the not unreasonable expectation that he will get a bigger wedge from PG if he does so.

Ideally, BBH should have been the one to buy him out. But it doesn’t have the money. So Publicis Groupe, which probably had first refusal anyway, stepped in and snapped up the agency. Gama will now have to report directly to PG group chief executive Maurice Lévy, which he will not enjoy very much. By all accounts, the two men loathe each other.

Even when the Neogama acquisition is completed, WPP – owner of Y&R, JWT and Ogilvy – will continue to be the biggest biller in Brazil.

Neogama’s $667m turnover in 2011 was up 5% on the previous year, according to Inter-Media Project. Its revenue was $53m. It has 270 staff, according to Publicis Groupe.

UPDATE 9/7/12: Some further facts and figures about Neogama’s performance have come my way. Almost certainly included in the deal were two Neogama subsidiaries, Triacom – a promotion company – and MIM – a digital specialist. BBH’s precise share in Neogama was 34.4%. It had no share in Triacom or MIM. The latest financial performance figures were:

Gross revenue, for Neogama, Triacom and MIM respectively:  $66.7m, $8.7m and $1.1m. Net revenue: $57.3m, $7.9m and $0.9m. Operating profit: $28.4m, $1.5m and $0.4m. Operating profit after tax: $18.1m, $06m  and $0.3m.

A rumour has surfaced that Neogama’s biggest client, Bradesco, is reviewing.

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Sorrell warns Lévy against buying Chinese agency Oriental & Rende

February 28, 2012

In an extraordinary new twist to the Oriental & Rende story I posted the other day, WPP chief executive Sir Martin Sorrell has written to his counterpart at Publicis Groupe, Maurice Lévy, warning him of the dangers of acquiring the Chinese specialist car agency.

Last year, I’m told, WPP subsidiary Ogilvy broke off acquisition talks with O&R after it emerged that the agency – whose main client is VW, Mercedes and Hyundai joint-venture partner FAW – was operating both outside Chinese law and accepted ethical practices. The problem seems to involve under-the-table payments, totalling several million dollars a year, which are being paid to the client management in order to retain business.

It is believed that, in his letter, Sorrell appealed to Lévy’s sense of fair play and emphasised the need for a corruption-free level-playing field in the international advertising business.

Corruption, knowingly or unknowingly, committed in foreign markets is now a major corporate headache. Under section 7 of the UK Bribery Act 2010, it is an offence for commercial organisations registered in the UK, or carrying out business there, to fail to prevent bribery taking place. The burden of proof is on the indicted company to demonstrate that it had adequate anti-corruption controls in place at the time of the offence’s commission. Punishment on conviction ranges up to a 10-year prison sentence and unlimited fines. France has similarly tough anti-corruption legislation governing overseas subsidiaries, involving heavy fines and potential imprisonment.

Whether Sorrell’s letter – to which Lévy is believed to have replied – will have any impact on PG’s decision to buy O&R remains to be seen.


WPP hurls BRICbats at Publicis Groupe’s performance figures

February 11, 2012

An arcane row has broken out between agency behemoths WPP and Publicis Groupe over the latter’s claimed financial performance.

First, some necessary background to the dispute.

These days, only two things really matter for global agency holding companies presenting themselves in the annual financial beauty parade. Two things, that is, beyond a clean set of figures showing decent organic growth, enhanced operating margins and a handsome improvement in earnings per share (EPS).

They are: how much revenue is digital (as opposed to derived from ‘traditional’ advertising). And: how much comes from emerging economies.

The annual figures merely tell us how well the company has been stewarded in the recent past. But the other two criteria are much more exciting because they are predictive. Get them right and you tantalise shareholders with the thought of future gain, garner positive headlines in the financial media, boost the share price and – if you are one of the company’s most senior executives – make yourself still richer in the process.

By these standards, Publicis Groupe has just produced a corker. Never mind revenue growth of 5.7% to €5.8bn in near economic-blizzard conditions, or operating margins of 16%, or EPS up 14%. What really mattered to The Financial Times was a sound-bite: Publicis’ US digital revenues are set to overtake those of traditional media.

And to be fair, it is a pretty singular statistic considering that, as recently as 2006, digital was only 7% of PG’s revenue globally; now by comparison that global figure is nearly 31%.

“Digital” is of course shorthand for: our share of the pie in the only bit of the advertising economy still growing in developed economies, such as the USA and Europe.

Of no less importance as a corporate virility symbol is “emerging markets”, the geographical counterpart of “digital’s” sectoral dominance. Maximum bragging rights are accorded to those who can establish leadership in the most significant of these markets, the BRICs (Brazil, Russia, India and China).

PG chief Maurice Lévy’s claim that 75% of group revenues will in the “pretty near future” be derived from a combination of digital and emerging markets such as “Brazil and China” is therefore music to the investment community’s ears.

Better still for investor returns, Lévy claims he will reach this milestone ahead of his rivals Omnicom and WPP.

Not surprisingly, these rivals are livid at the suggestion. So incensed in fact that WPP, for one, is challenging the factual evidence on which Lévy has built his ambitious projections.

It has dissected PG’s webcast financial presentation and done a slide-by-slide demolition of PG’s BRIC performance. I won’t bore you with all the details. But here’s the gist:

Slide 32, Brazil. Lévy mentioned last year that Brazil was PG’s 4th largest market. Now he’s saying it’s the 6th. What happened?

Slide 33, China. WPP takes issue with PG’s assertion that it will double its size in this all-important market by 2013, from a $200m 2010 revenue baseline. It says the ‘3 creative network leaders’ claim is a myth. R3 sourced figures actually put WPP and Omnicom agencies ahead of PG’s. Cannes performance also suggests WPP outguns Publicis. PG claims to be top in media buying: this is flatly disputed by WPP, which says RECMA figures prove it is overall leader in Greater China. The key argument, avers WPP, is over organic growth. Here, PG is achieving about 8.5% while WPP appears to be nearing 16% a year.

Slide 36, Russia. PG claims leadership in this market both in media (Vivaki) and creative (Leo Burnett and Publicis Worldwide). WPP asserts that there are no reliable creative rankings in Russia and where media is concerned it is emphatically on top with 28% share versus PG’s 23.2%, according to RECMA figures.

Slide 37, India. PG claims to be number one in new media business (Vivaki) and no 2 in creative (Leo Burnett), quoting R3 as the source. But R3 does not do a new business table for India, says WPP. PG claims strong positions in digital, healthcare and PR, but with no source attached. PG’s digital presence is “tiny” (says WPP), and it has made no recent acquisitions. As for media, according to RECMA, WPP’s GroupM has 42.7% share while Vivaki is 3rd with 9.4% share. Creatively, the latest Economic Times 2011 Brand Equity rankings for agencies (the only authoritative source on this subject) puts two WPP agencies Ogilvy and JWT first and second, while Burnett is 6th and Saatchi & Saatchi 17th.

It’s no surprise, of course, to find these two deadly rivals engaged in another slanging match, albeit disguised in high-falutin’ finance speak. What will be interesting is if Publicis has a riposte.

POSTSCRIPT. I note that, despite a strong set of figures and robust balance sheet, PG has maintained rather than increased its dividend. As Lévy explained, that’s because PG needs to hold on to all the cash it can in case it has to buy back up to €900m of Dentsu shares later this year. In view of recent developments, this seems highly likely.


Print and posters more persuasive than film at Epica 2011 creative advertising awards

January 7, 2012

Creative advertising award schemes are, by their nature, an imperfect guide to reality. If your agency doesn’t enter, your work doesn’t get considered; on the other hand, those who do enter and win may be regarded as unrepresentative of general industry opinion.

Even so, hardy annual schemes provide a rough and ready guide to agencies and agency groups that are performing above standard.

Which is exactly what you find with the latest Epica international advertising awards. Set up in 1987, they are Euro-centric or rather EMEA in their scope and differ from most in the genre in being assessed by senior advertising trade-magazine journalists (usually editors) rather than the creative community. Creatives may dislike their work being prodded and probed by what they probably regard as a bunch of philistines, but they cannot deny that experienced journalists bring a degree of objectivity to the proceedings.

So what does Epica 2011 tells us? First that Germany, not France or Britain, is the advertising power-house of Europe. To be sure you would expect the biggest country – and the only one with a thriving economy right now – to be the most prolific entrant. But it also hauled the most winners: 15 golds, 45 silvers, 29 bronze – 89 awards in total. By way of perspective, France came second with 66 awards, of which 11 were golds; and Britain trailed Sweden in fourth place with 41 awards (Sweden: 58), of which 12 were gold (Sweden: 8). Germany had an “off-year” last time round, in 4th place. But pole position is no fluke: it has taken the palm 7 times in the last decade.

Next, the best performing networks. This was less clear-cut than last year, when WPP-owned Y&R attained an easy ascendancy with 8 category winners sourced by 4 different shops. It managed to cling on to top position this year but with a lesser margin – 5 winners from 2 shops – and also faces a serious challenge from Wieden & Kennedy, which shares the top honours. Next ranking were IPG-owned McCann Erickson (4 winners in 4 offices), Omnicom-owned BBDO (which is clearly slipping, 4 winners in 3 offices) and WPP-owned Ogilvy (the same). DDB (Omnicom) came sixth.

Individually, Serviceplan Gruppe Munich, Fred & Farid Paris and W&K Amsterdam took the most golds (4 apiece); and Forsmann & Bodenfors, Gothenburg the most awards (18).

So much for the statistics, but what of the overall quality of the work? A bit of a curate’s egg this year. Film, which is generally regarded as the most prestigious of the 4 leading Epica d’Or awards, finally went to W&K Amsterdam’s ‘Open Your World’ campaign for Heineken. In effect, W&K was in a duel with itself for the top honours, since the other serious contender was its last year Cannes winner – ‘Write the Future’ for Nike. Neither exactly resonates as an imaginative choice – although what they lack in originality they certainly compensate for in verve and exceptional production values. Of the two, Heineken has to have been the right choice: Nike was sooo dated and yesterday’s choice.

But if film failed to sparkle, there was ample refreshment elsewhere. Print, a category in decline if ever there was one, gratifyingly produced a triple surprise. The winner, Leo Burnett’s Swiss office Spillmann/Felser/Leo Burnett Zurich, provided some crackling word-play for, of all things, a financial services client, Swiss Life. “Life Turns in a Sentence” plays verbally on life’s vicissitudes with a series of statements that change their meaning 180 degrees in mid-sentence.

Similarly inspiring was Rainey Kelly Campbell Roalfe/Y&R’s “Passport Stamps” work for Land Rover. It had a simple, appealing graphic quality which would have worked equally well in print although in fact it won the Outdoor Epica d’Or.

While we’re there, the fourth of the big prizes, for Interactive, was won by Jung von Matt Stockholm for its “MINI Getaway” campaign.

For more on the winners, click here.


BP exploits past triumph over disaster to camouflage new one welling up

April 12, 2011

In an access of self-congratulation, BP’s current press advertising campaign trumpets the oil company’s success quelling one of the world’s worst natural disasters  – caused by, er, itself (and, in fairness, a few commercial collaborators such as Transocean and Halliburton). An irony in itself, you might say. But, as will be seen, not the only one.

The ads, created by Ogilvy, feature an image of the Macondo oil site in the Gulf of Mexico taken on September 28th last year, showing a crystal-blue ocean lapping around an oil rig. Below it is the strapline: “One year later. Our Commitment continues.” And, just to give the flavour, here is some of the body copy: “From the beginning, BP has taken responsibility for the clean-up. Much progress has been made and our commitment to the Gulf remains unchanged.” The campaign marks the anniversary of a massive explosion on April 20th last year, whose after-effects devastated the wild life, fishing and tourist industry in the Gulf. It should be added that the disaster nearly brought BP, one of the world’s largest companies, to its knees, and cost its chief executive, Tony Hayward, his job.

BP, under new management headed by Bob Dudley, is now breathing a huge sigh of corporate relief. Predictions that it would be broken up, that its share price had undergone irreparable damage, that it would be a blighted brand shunned by consumers, or even that it would be excluded from further drilling operations in one of the world’s most prolific oil fields, have all proved wide of the mark. Meanwhile, almost all the beaches are back in business in the Gulf. So a triumph of sorts .

But what’s this? Dudley, the squeaky-clean new CEO, is in trouble already. An American with extensive experience of the Russian oil market, Dudley’s big strategic idea is to call in the Old World to redress BP’s damaged balance in the New. Specifically, he has crafted a smart but high-risk deal with Russia’s state-owned oil group Rosneft, which would give BP a free hand in exploiting some of the world’s richest oil reserves, languishing under the Arctic shelf. Rosneft does not have the expertise to do this on its own, and the deal – involving a massive $16bn share-swap between BP and Rosneft – would put BP in the enviable position of being the only oil major able to tap into these reserves, while also lessening the company’s dependence on the USA as an upstream (oil exploration) market.

At the time it was announced a few months ago, the Rosneft deal was greeted with much hoopla in the investment community, which had the desired elevating effect on BP’s share price. Now, however, the deal has reached an impasse and Dudley’s reputation is potentially oil-tarred. The politics are complicated but, essentially, BP’s partners in its existing Russian joint-venture, TNK-BP, have – apparently unexpectedly but so far successfully – injuncted the deal. Time is running out: the deadline is April 15th. Either the deal fails, in which case BP will receive another massive blow-back to its reputation. Or BP comes up with a huge bung (said to be $2bn) so that the green-mailers go away. Option B is of course preferable, but still leaves Dudley, BP, his chums at Rosneft and in the Kremlin looking like a bunch of chumps who have been outwitted by a few greedy oligarchs.

Either way, a bit of tactical diversion aimed at BP’s investment community – which is still largely London-based – seems highly desirable while things are sorted out. And what better manner of doing it than to remind investors, via the Sunday press, the dailies, The Spectator, New Scientist and the Economist, of BP’s earlier triumph? Or rather, triumph over a self-manufactured disaster.


Omnicom closes $100m Communispace deal

January 25, 2011

Silence reigns at Omnicom Towers on its mooted $100m deal with eCRM and insight company Communispace. Which is odd, for two reasons. First, it is the biggest deal engineered by the marketing services juggernaut since its ill-fated acquisitions of Agency.com and the somewhat more successful Organic in 2003. Second, and rather crucially – I hear the deal has gone through.

At all events, Communispace founder, president, chief executive and 10% shareholder Diane Hessan is packing her bags (now presumably heavy with loot).

The question is, what happens now? In an earlier post, I pointed out that $100m is a very steep price – yet, curiously, it does not seem to have been a stumbling block for that wily operator John Wren, Omnicom president and chief executive officer.

At the time I concentrated on the financials, and speculated that there must be something very special about this deal for Omnicom to hazard such an over-priced acquisition. That logic can be applied with equal relevance to Communispace’s clients. True, there are many the two parties have in common, plus a few that Omnicom would like to lay hands on. Yet it’s hard to ignore the conspicuous conflicts. Not just on the brand side, either. A slug of Communispace’s business flows from Omnicom’s rival agencies. Here’s an excerpt from AdAge that neatly summarises the conflict dilemma:

One reason why an Omnicom deal would make sense? Communispace lists as its clients several marketers that work with agencies under the holding company’s banner, including HP, PepsiCo, FedEx, Kraft and Campbell. But the Communispace client list also includes agencies at rival holding companies, like Havas’ EuroRSCG, Publicis Groupe’s Starcom MediaVest Group and Interpublic Group of Cos.’ Martin Agency. Were an Omnicom deal to happen, such alliances would likely have to dissolve, as would accounts with clients like Verizon, a major competitor to a big Omnicom client, AT&T.

I’d add WPP’s Ogilvy to the list of competitors as well (check out Jim Edwards at BNET on this one).

How does Wren plan to steer himself around that one? His last experience with a major acquisition, controversially managed through off-balance-sheet vehicle Seneca Investments, was not a happy one. Let’s hope history does not repeat itself.


Lévy makes waves in Brazil, but who’s making the profit?

August 26, 2010

“We believe this will be the decade of Latin America, driven by the Olympics and the World Cup.” Who’s this speaking? In fact, WPP chief Sir Martin Sorrell, referring specifically to one of his favourite BRIC markets; but it might just as well have been his indefatigable rival, Publicis Groupe ceo Maurice Lévy, who has been hoovering up Brazilian advertising agencies as if there’s no tomorrow.

He recently bought a smallish, but trendy, digital agency AG2 , which has been stitched onto Publicis Modem. His latest headline-grabber is a bid for Talent, a privately-owned creative agency that counts Sony, Timberland and Santander among its clients.

According to the Financial Times, which broke the story today, a successfully concluded deal will give Talent a sky-high valuation of $200m (it employs about 200 people), making selling out to the big networks a highly attractive option for other independent São Paulo agencies.

One of Lévy’s gifts as a dealmaker is his ability to seduce his acquisitions into the group as “partners”, leaving them a strong independent identity less liable to defection once the earnouts are paid. The stake in BBH, still 49%, is the most notorious example. With AG2, he has been careful to remodel the network name as AG2 Publicis Modem, in Brazil. At least for now.

The thinking behind the Talent deal is no different. I’m told it’s actually a disguised takeover, to spare the acquired agency’s blushes. Publicis will take 49% when the deal is initially concluded, 11% in 6 months and the rump-end 40% in 3 years’ time. Founder Julio Ribeiro plans to stay on, but he’s of Ed Meyer vintage (78 to be precise); and the chief executive is himself 58.

Talent is a decent agency, with post-tax profits of about $15m (swelled by the Santander account) on revenues of about $50m. But the deal – though a good headline-catcher – is not game-changing for Publicis in Brazil. WPP, which itself showed earlier interest in the agency, is the dominant force. Talent is 15th in the market ranked by billings (according to the latest IBOBE figures, which exclude other marketing services revenue). Publicis’ top Brazilian agency, F/Nazca Saatchi & Saatchi, is ranked 10th, Leo Burnett 13th, Publicis Worldwide 22nd, and Salles Chemistry 33 . But WPP’s Y&R is number one, JWT number 2 and Ogilvy number 3, with Grey trailing at 41. Aggregate score? WPP 1, Publicis (even including Talent) 3.


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