Sorrell Is Right -- Consolidation Is Inevitable As Buying Growth Becomes The New Norm

It's good to see that sometimes your corner of the world sums up what's happening in the wider industry. Today it has been confirmed in Campaign figures from Kingston Smith that the big guys are effectively buying growth.

The top-performing holding company among the big six this year is Publicis Groupe, but its revenue going up by nearly a third is not due to some master stroke of strategy. It's because the company bought Sapient. At the same time, Interpublic revenue is up a more impressive 5% and Havas, which has been on a spending spree over the past couple of years is also doing well.

Conversely, Omnicom has seen a 1.2% decline in revenue, while at WPP -- no stranger to acquisition -- revenue is up nearly 5%. In effect, where revenue has leaped, we're basically talking about companies buying growth. It was hinted at by Sir Martin Sorrell at this year's Festival of Marketing in London.

In a very open and frank discussion about the near-term future for the industry, he pointed out that zero-budget marketing was the biggest threat and that organic revenue growth was already low. Consolidation would almost certainly follow. His big surprise, for me was that after having been such a vocal critic of the Omnicom and and Publicis merger, he now resolutely expects one of the big six to buy another of the big six.

This is exactly what people have been reporting back to me throughout the year. The feeling has been, both before and after the Brexit vote, that zero=based approaches will make the future very hard. Not only would it add to the endless cycle of pitches, it is ushering in the age of the bean counters, where everything is driven by cost.

The large agencies, of course, know how to send in the big guns, slash their price to win work and then pass it on to minions who -- the suspicion remains -- are tasked with not just winning more work but finding a way of earning back fees that have been cut to the bone. Exaggerating manpower given to a client is always a good one there. For the smaller agencies, it looks pretty bleak. They can ill afford to send out executives for endless pitches they know the big guys can secure if they try hard enough. 

The likelihood is that independents may well seek the safe harbour of a holding company to weather this storm. The large agencies aren't just looking to buy growth, in a flat market they're also looking to buy business. That means the small agencies are having to "buy" that growth too so they may look like a more appealing target for a larger player. It's far more difficult, however, for smaller agencies to perform a sleight of hand and exaggerate how many people are working an account to subsequently re-inflate billings.

So, the reality is. Business is being bought. Growth is being bought. Consolidation is inevitable. If the big six is still the big six in a year or two, it will come as a surprise to many -- not least of all Sir Martin Sorrell.

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