Law No.4.680/65 dating from 1965 to be precise, which specifies that the agency that creates the ad must buy the media, that gross media commission must be between 15 and 20 per cent and that further trade discounts should be paid to the agency and not revealed to the client.
Which is the reason why Publicis Groupe is happy to pay $110m for 49 per cent of Talent which generates revenues of $70m from the activities of its two agencies, Talent and QG Propaganda. The handy law mentioned above means that running a successful creative agency in Brazil is highly profitable, with guaranteed margins, no pesky media buying agencies to worry about or clients able to pore over your books to see if there’s any money they can grab back.
Publicis Groupe has an option to buy the remainder of Talent in three years which will take its valuation to north of $220m, equating to nearly $1m for each of its 260 or so people although this number is likely to go up as Brazil prepares to host the next football World Cup in 2014 and the Olympics in 2016.
Most of the loot will go to Julio Ribeiro, who founded Talent in 1980, and QG founder Paulo Zoega. The two agencies will take their place in the Publicis agency network which will give the Groupe two strong networks in the region, the other being Saatchi & Saatchi.
Analysts have welcomed the buy despite the eye-watering price because of the margins available and the likelihood of accelerating growth in Brazil where advertising is already increasing by around seven per cent a year.
In a note to clients Citigroup observed that “big groups have the relationship with the large multinational companies but often don’t have the local knowledge, creative expertise and distribution to service these companies in emerging markets.”
That’s telling ’em.