February 01, 2017

Ad agency mergers, big and small, part of larger industry changes

THE GLOBE AND MAIL
Susan Krashinsky Robertson - Marketing Reporter
Published Monday, Dec. 19, 2016 10:06AM EST

Another independent Canadian advertising agency has been snapped up by a global holding company. On Monday, ad agency network Grey Group – a division of London, U.K.-based WPP PLC, the world’s largest marketing communications company – announced it has acquired Montreal-based ad agency Tank.

Terms of the deal were not disclosed.

While Tank will continue to operate under its own brand, it will be part of the Grey network, and will help Grey to expand its capabilities in French Canada, as well as in the pharmaceutical and health care space. Tank’s clients including AbbVie Inc., Bristol-Myers Squibb, Pfizer, Lundbeck, and Eli Lilly – a client Grey also works with in a number of markets. Health care is also one of the largest sectors in which Grey does work, and its oldest-standing client is GlaxoSmithKline Inc., with a working relationship dating back to 1955.

Tank has been on a growth spurt, hiring more than 50 people in the last couple of years as a result of adding clients including French work for Telus, Canadian Heritage in preparation for Canada’s 150th celebrations, Reitmans, Abbvie and Pfizer.

“The Canadian market has seen a squeeze that’s very similar to other mature markets. We see the opportunity for the Canadian market to serve as a new global hub, for global business,” Michael Houston, president and CEO of Grey North America, said in an interview. “…Our clients like the talent pool, like the fact that it’s just as close as anywhere else they would get on a plane to visit, and of course reaping the benefits of the foreign exchange.”

Recent years have seen a spate of acquisitions of independent agencies in Canada. In January, Tokyo-based Dentsu Aegis Network Ltd. announced its acquisition of Toronto-based Grip Ltd.; and last year, Tokyo-based Hakuhodo DY Holdings purchased Montreal-based ad agency Sid Lee. In 2014, Quebec City-based Vision7 International, owner of ad agency Cossette, sold an 85-per-cent stake to Chinese public relations giant BlueFocus Communications Group. WPP for its part purchased ad agency John St. in 2013 and Taxi Communications in 2010.

But there has also been consolidation as some shut their doors in the face of mounting cost pressures from marketers and tightened margins for agencies. Last year, WPP folded the agency Young & Rubicam in Toronto to continue its operations under the Taxi banner. It has since done the same with Y&R’s offices in Montreal. Also last year New York-based Interpublic Group shut the doors on Lowe Roche in Toronto.

Tank has about 120 employees and offices in Montreal and New York. With this acquisition it plans to expand to the U.K., France, Germany and Japan in the new year. Those satellite offices will be designed to draw work back to the Canadian hub, said Tank’s president, Marc Lanouette. Mr. Lanouette will now become CEO of Grey Group Canada, a position left empty since Stephanie Nerlich left the company to join MDC Partners earlier this year.

“The advertising pie is not growing. So for us to be able to tap into getting work outside of our country, but being done in Canada, that’s amazing,” Mr. Lanouette said in an interview. As marketers’ budgets have shrunk, and companies’ procurement departments have been pinching pennies particularly when it comes to advertising services, the low loonie is an advantage, he added. “Our dollar and our talent pool, there’s more value for clients to work with Canadian talent. Even at parity, I think there is tremendous value.”

The consolidation in the industry was not the motivating factor for the acquisition, Mr. Lanouette said, but being part of a larger company gives it the investment it needs to grow, including opening global offices. Tank drew $14-million in revenue in the fiscal year ended April 30.

“We want to make global clients look at Montreal and at Canada. That’s the goal,” Mr. Lanouette said.

The ongoing consolidation is shrinking the pool of smaller independent shops in Canadian advertising, who have to compete with the resources and scale of those owned by multinationals.

“As a small player, we’ll always be up against the big shops,” said Mike Bevacqua, president of agency Arrivals + Departures, which was formed last week with the merger of independent agencies Blammo Worldwide and Extreme Group. The combined agency has roughly 50 employees and offices in Toronto and Halifax. The company is now working on an acquisition of another small agency that specializes in digital services, which it should be ready to announce by March. Mr. Bevacqua hopes that combining the agencies’ specialties and talents will give them a better chance to compete against big players.

“This is an exciting and tough time to be an ad person,” he said. “Clients are looking for someone to think differently about how they navigate an incredibly fast-moving market. We think we need more courageous thinkers and I believe those exist where there are less constraints: that is, a smaller shop that doesn’t report to Chicago or New York. … There’s a freedom to make decisions quicker.”

Montreal-based Lg2 is another example of a Canadian agency that has been working to stay independent: earlier this year, it completed a process of share buybacks that allowed its founders to sell down their stakes in the business and to hand over control to new leaders. Whether independent or not, it is clear there is demand for ad agencies to work differently with clients as marketers try to navigate a shifting media landscape and major changes in how their money is spent. At Tank, Mr. Lanouette credits much the agency’s growth to its “ThinkTank” approach, which brings clients into its offices and allows them to collaborate on ideas.

“We can’t be receiving a brief, thinking about the business for three weeks and then pitching – we bring them into the process, they work with us,” he said. “It’s a new way of working with clients. That’s our secret weapon.”

The Globe and Mail (Direct Article Link)