Tom Denford from ID Comms and Brian Wieser of Pivotal Research: holding company finances are a black box

On this week’s #MediaSnack Tom Denford chats to Brian Wieser, the marketing business’s favourite analyst. Tom and Brian talk about the challenges of making sense of holding company finances, the importance of new business and what it will take for consultancies to make a big money bid.

First, they discuss the challenges of how agencies work and Brian explains that it’s difficult to identify pan-industry trends, not least because all of the holding companies report their data differently.

In particular, he singles out Omnicom which uses pass-through revenues in a way that makes it hard to assess the underlying trends in the sector and highlights its ownership of companies that are not even part of the marketing services business.

That makes it difficult to compare apples with apples because headline organic growth is often apples, pears and oranges.

Brian notes that while there has been an issue with transparency, zero-based budgeting and contracts leading to historically weak revenue growth, this lack of clarity can mean investors have a distorted view of the health of the industry. And that can impact on how capital gets allocated.

This explains why investors pay so much attention to new business wins, because these offer data points that allow them a glimpse into the black box. Because new business wins can be tracked, they provide something that investors can react to.

Brian argues that this helps investors determine if one holding company’s bad results are simply poor performance or a reflection of a wider story, even if contracts that get renegotiated – a much bigger issue – don’t get publicised.

He says that although most of his ratings are hold, he is broadly optimistic about the future of the agency business. He subscribes to the cockroach theory that agencies will outlast us all. Having worked in the business he says it probably has a greater share of future entrepreneurs than Silicon Valley and that will create an everlasting source of growth.

Finally, Tom and Brian discuss possibility of a consultancy buying one of the holding companies. Brian argues that while there is industrial logic, firms such as Accenture need to be provoked into doing something.

However, if someone places a bid for IPG, for example, then companies like Accenture will have to decide whether they want to get involved. Cap Gemini’s CEO has already said it would act if it thought Accenture would act.

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