Holding Companies Scale

“Holding Company”–it’s a term that echoes loudly throughout the recent decades of the advertising business. In its less favorable connotations, it portrays a faceless organizational monolith whose primary objective is gaining control over other, usually smaller, companies, and then harvesting profits, destroying culture, and eroding talent and work quality–all while adding little value other than “scale.”

How did the holding company model establish such a strong grip on the advertising business?

The early architects of the advertising, communications, and media holding companies recognized two critical trends—clients were increasingly expecting more services for less money, and service-based businesses created more value for their owners by transitioning from privately held partnerships to publicly traded enterprises.

Clients were also looking for greater connectivity across global markets and a wider spectrum of services (e.g. professional advertising, DTC, digital marketing, PR, and medical communications). But, importantly, they wanted to purchase those services for less than if purchasing them separately.

The holding company model offered an elegant solution for aggregating companies with diverse services while providing a structural way to avoid client conflicts–an important consideration in the era of Big Pharma. Yet, public ownership also entailed stricter operational and financial governance and continuous growth in revenue and profits even in the face of cyclical business conditions.

A primary selling point of holding companies was scale. Diversified services delivered globally was aligned with the global reach of big pharma companies. And greater scale offered the promise of greater efficiency–a benefit that, while sounding attractive, was in fact difficult to achieve.

Clients that established broader and deeper relationships with particular holding companies often did see financial benefits. Yet, they often didn’t experience the lofty promise of “synergy.” Populating numerous agencies under one roof was far easier than getting them to actually work together toward a common client goal. In some cases, individual agencies within a given holding company competed more fiercely between themselves than between external rivals. This was an unintended consequence of consolidation and needed to change.

The second decade of the 21^st century is when agencies within their respective holding companies started to work in a more cooperative fashion. Clients were increasingly presented with a more unified and integrated offering, one that more fully delivered on the promise of synergy and efficiency within the network.

Achieving and maintaining this kind of constructive cooperation was challenging. Acquiring the right agencies that had the right, compatible mind-set became critical, as was establishing the right expectations and incentive systems. Hands-on leaders began to emerge who emphasized that the network could be more than the sum of its parts; that, when one agency benefitted, all benefitted.

The holding company model, now in its mature phase, has even made its way into large consulting firms (Accenture) that have entered the pharma space. As the first quarter of the 21^st century comes to an end, there is little question that holding companies dominate the advertising landscape.

Yet, even in the face of holding company dominance, it’s reassuring to see the continued emergence of smaller, entrepreneurial companies who are nimble and driven enough to be on the cutting edge of innovation and creativity. No matter the company scale or structure, our business will forever be driven forward by great ideas, brilliantly executed and perfectly placed by talented creative and client-oriented professionals dedicated to their craft.

Holding companies believed early on that healthcare advertising, medical education healthcare public relations—anything healthcare related–is industry-relevant  and evergreen. Both the holding companies and the entrepreneurs whose companies they have acquired have profited. As have pharmaceutical clients across the healthcare spectrum. Because generally all the communications services they required were present and easily accessible under one broad roof.

The holding company promise…we will help you grow faster, grow geographically and assist you in adding communications capabilities around your company’s offering faster and better than you can on your own.

It was then, and it is today, a bright future for entrepreneurs in the healthcare industry.

Holding companies magnetized entrepreneurs to their platform…because of the promise of strategic partnership in growth. Because the holding company supported entrepreneurialism and growth through innovation.

There is a very simple scientific principle that states that like seeks like. Entrepreneurs like being around entrepreneurs who think like themselves, are risk takers, are innovative, are problem solvers.  And Omnicom was just that. Entrepreneurs throughout the organization. We had companies led by their original founders, the entrepreneurs whose vision created industries. People simply wanted to be associated with these industry titans. We seldom lost founders to retirement.

Because my business group was acquired by Omnicom, I was an entrepreneur within a public holding company, I was an intrapreneur. I went through the process of selling. I was an apostle for the holding company model because…well, it worked brilliantly for my company. I knew the emotional ups and downs of “selling your baby”. And because of that, the founders of agencies we wished to acquire were very comfortable with me. I empathized with their feelings, their emotions.

It was a special time in industry. We grew; and our competitors like Publicis, IPG, WPP grew as well. We each had our respective acquisition criteria. Each of the holding groups had its style, its DNA if you will. We were each different in our approach. And what I can say about Omnicom is that ‘what we wanted the founders to do after the acquisition was to do exactly what they did before the acquisition’—-that is to run their company entrepreneurially. And in the manner that continued to be recognized within their slice of their industry. . Let us at Omnicom  simply be their strategic partner in their planned growth and successes.

Nothing remains constant, however. The clear and unencumbered path forward to acquisitive growth of the holding companies is being challenged on multiple fronts.

Years ago, I predicted that the big consulting firms like Accenture would enter the space once dominated by the holding company, and they have. It is rather easy for the consultant who already enjoys an advisory relationship within the C-suite to go down the hall, metaphorically speaking,  to marketing and win brand planning and strategy business once held by the holding company. This is occurring today.

I also saw that private equity was exhibiting growing interest in the marketing services space. Especially healthcare related companies. And I predicted that private equity would, with a different acquisitive model, become very attractive to entrepreneurially led companies. It has recently been reported that more new healthcare business is awarded to PE-owned agencies by pharmaceutical companies than to holding company owned agencies. A shift of seismic importance.

So, the future of the holding company is now one which is challenged with new competition. From outside and from within. Competition from firms that may be as attractive as the holdcos once were when they were the ‘game in town’. But it is a future that will inevitably be strong because competition simply makes us all better. More creative. More disciplined and more strategic. Focused on what’s important to the founder entrepreneurs. Doing sensible deals that add to an already incredibly strong and broad portfolio. Being a finely tuned machine that one cannot, should not ignore or discount. That race is ON!