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Holding groups are ‘squeezing the life’ out of agencies, says Michael Farmer

Michael Farmer

Michael Farmer: ‘Don’t sell’

Agency business advisor Michael Farmer has warned independents not to sell their businesses to holding companies as they are “squeezing the life” out of their agencies.

Speaking at the SAGE conference in Sydney, Farmer, the author of ‘Madison Avenue Manslaughter’, warned his audience of independent agency bosses they should make your wealth another way“.

While many holding companies have built scale through acquiring independent agencies, Farmer warned: “For the holding companies it’s been very successful, when you think about how big WPP, Publicis and Omnicom have become over time.

“But at the same time they have squeezed the life out of their brands, and in order to be competitive with clients today they are now having to grow as holding companies.

“The principle strategy for WPP is not ‘how can I help Ogilvy be successful?’. Ogilvy will become a source of resources and expertise for a holding company relationship. Same with JWT and Grey and Y&R.

“Publicis has been absolutely clear that they no longer respect the concept of a branded agency because very few branded agencies have all the capabilities that client needs. So where holding groups have been successful they’ve done it by squeezing the life out of the agencies that work for them, and they’ve encouraged actions which are not in the interest of the agency, but of the holding company.”

WPP boss Sir Martin Sorrell has built the business via acquisitions, says Farmer

WPP boss Sir Martin Sorrell has built the business via acquisitions, says Farmer

While some clients are looking for more full-service agencies, Farmer said many are “experimenting today” leaving room for “smaller, highly results-focused agencies to carve out a piece of the business that’s going to the others and get paid differently”.

Asked if he was recommending not to sell he said: “Don’t sell, it’s a nightmare and it’s getting tougher.”

“It used to be that they had the media agencies that were such cash cows that even if the creative agencies didn’t do well they were fine.

“But look what’s happened to the media agencies: rebates; ad-blocking; click fraud; and clients’ lack of trust of media agencies has never been higher and you can be sure the number of reviews of media agencies is going to increase.

“That takes the cash cow away from the holding companies and the squeeze on the creative agencies is going to be even greater.

“Make your wealth another way, don’t sell to the holding companies because your life’s going to be pretty miserable when you understand what you’re going to have to deliver every year no matter what’s going on with your clients.”

Alex Hayes

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