Why are so many agencies investing in Latin America?
In the last year, holding companies and challenger rivals have had their eye on Latin American countries, with a string of partnerships, new offices and acquisitions. As we take a Deep Dive into how the pandemic has sped up the globalization of the marketing industry, agency execs and analysts explain why there’s such interest in this region.
Latin America’s marketing companies are in high demand among advertising’s biggest players. In the last year, a string of acquisitions of firms in Brazil, Mexico and beyond have been executed by holding companies and challenger networks, while existing offices in cities such as Medellín, São Paulo and Mexico City have been strengthened.
Droga5 announced the opening of a new Brazilian outpost earlier this year, and its parent company Accenture Interactive snapped up São Paulo CX and commerce specialist Experity. Brazil is also considered a top target for growth by WPP, which now counts 4,000 employees in the country. In February, it acquired DTI Digital, a software engineering company, for an undisclosed sum. In September, Stagwell struck a partnership between Allison+Partners and Grupo Garnier, an agency with officers in Costa Rica, El Salvador, Guatemala, Ecuador, Peru, Panama, Honduras and Mexico. Mark Penn, the network’s chairman and chief exec, said Latin America was a ”doorway for businesses eyeing global expansion”.
And S4 Capital, the parent company of agency network Media.Monks, has been busy across the region since its inception, adding Progmedia, Circus, Raccoon, Digodat and Zemoga to its ranks. While the pleasant climate is surely a pull factor, it doesn’t explain why there’s such interest in the region.
Why are agencies investing in Latin America?
The economies of Latin America are large and growing larger. Brazil has the world’s eighth biggest national GDP; Mexico ranks 15th. Services accounted for 60% of the GDP of countries across Latin American and the Caribbean last year (it’s 77% in the US and 73% in the UK), according to the World Bank. Furthermore, its tech scene is growing swiftly; the Financial Times reports that $4.1bn of venture capital was invested across the region last year – more than South East Asia.
Despite the enormous inequities also present in the region, which includes Honduras, Guyana and Haiti, and the heavy impact of Covid-19 on its economies, the number of people in Latin America considered to be ’middle class’ has been growing for years. The number of consumers, and of businesses looking to meet their demands, is increasing.
Greg Paull, co-founder and principal at R3, tells The Drum: ”Agencies are looking to capitalize on the long runway of growth of untapped e-commerce markets, and Latin America's adoption of e-commerce has accelerated over the past 18 months.”
As well as a rapidly developing regional economy, Latin America is also ripe for competition between advertising’s major players.
The United States and Europe are ’saturated’ as a regional market, and as Tristan Rice of SI Partners explains: ”It’s quite hard to break into if you’re not already there because there’s so much competition.”
In contrast, there are few domestic players large enough to compete effectively (in contrast, for example, with Dentsu’s strong position in East Asian markets). Rice says this makes the region ”a greenfield opportunity” for acquisitive overseas holding companies and networks.
”Mexico and Brazil are particularly high growth markets and mature markets in terms of their media consumption. Therefore they are priorities for clients and agencies, and that means you need to buy stuff.”
SI Partners advised on the acquisition of Brazilian Amazon specialist Molzi, by Brainlabs, in September. ”Now, for the first time, we’re having quite a few conversations in which Latin America is featuring at least as high on the list of priorities as Asia,” he says.
Can Latin American acquisitions solve the agency talent crunch?
For Scott Spirit, S4 Capital Group’s chief growth officer, growth in Latin America means access to growing markets and new clients. ”Places such as Mexico, Colombia and Argentina are massive domestic markets and there are some great clients in Latin America.”
S4 currently works for Mercado Libre, for example, and its global clients (which include Google, Facebook and Netflix) are also interested in the region.
But S4’s principal interest in the region is in its people. ”When you’re building a global company, you want the best possible talent, and there’s fantastic talent available across Latin America.”
Agencies, he suggests, cannot simply wait for international talent to emigrate to New York or London – they have to come to them. ”The reality of life is that a lot of talent is not as mobile as people would expect. Especially during Trump’s time, the US wasn’t the easiest place to get visas to go live or work. And a lot of people don’t want to leave their home countries, but they do want the opportunity to work on big global clients.”
Media.Monks has also scaled up its agencies’ existing operations in the region (the agency had an office in Brazil prior to its acquisition by S4) from 100 employees to over 500. But acquiring new companies, like S4 has done, is a shortcut to bringing the best talent into the tent. ”We’ve never shied away from the fact that we are quite acquisitive. We’re building a company from scratch. While organic growth is the focus... we are keen to expand quickly and M&A is a way of doing that.”
Furthermore, the strategy allows agencies to swiftly add entirely new service offerings or specialisms – an advantage, given the salary inflation and competition for top talent in the US and UK. ”It’s not a question of just buying additional capacity... it’s about building different capabilities and different geographies.”
Jay Pattisall, an analyst at Forrester, says this could be a major driver behind wider trend. ”It’s difficult to find talent,” he says. ”I have had agencies tell me their ability to make their numbers this year will depend on the number of people they are able to onboard. So that makes the acquisition a much more feasible strategy for growth at this stage.”
R3's Paull agrees: ”It is far more cost and resource-efficient to acquire an agency than organically expand - particularly when travel and borders are still largely restricted.”
Onboarding new staff in markets such as Brazil and Mexico will also require less investment from agencies. Compared with New York, London, Paris and Los Angeles, Pattisall says: ”There’s a salary advantage and a cost of living advantage... but at the same time you have cities that are thriving, the workforce is at a very high standard, they’re well-educated particularly when it comes to technology, production and creative talent. It makes good sense.”
While Spirit acknowledges the group has been busy in Latin America, he says S4 and the businesses it has been acquiring in recent years are ”agnostic across borders”.
While Latin America has been an M&A focus, it has also established a data center in Kazakhstan and a ”massive” production hub in India. Zemoga, which is based between the Colombian cities of Bogotá, Cali, Medellín and Barranquilla, doesn’t have a single client in the country – most of its business is for US clients. Pattisall thinks in this case it was ”all about the technology capabilities”, with location probably a secondary consideration.
Spirit concludes: ”Our clients want access to the best talent and our view is that doesn’t necessarily sit in London or Manhattan. It could be anywhere. And global opportunities allow us to provide access to that talent.”