Agglomeration or bust: behind The Marketing Group’s stock market fortunes and its plans to prove the model still works

As The Marketing Group's share price takes a tumble, we explore the circumstances behind it

When The Marketing Group’s share price plunged below €1 on 21 March 2017, many of its critics had their schadenfreude moment tinged with “I told you so!”

It is hard to imagine that just half a year ago in August 2016, the group’s share price skyrocketed to €9 just three months after listing. The masterminds behind this listing, Callum Laing and Jeremy Harbour and their company Unity Group, were talking about ‘agglomeration,’ a new business concept of a collaborative Initial Public Listing, creating a bigger holding company out of many smaller agencies.

In theory, this sounds like an excellent idea, creating a larger holding company to bid on bigger projects and punch above its weight, creating scale for indies, while retaining almost everything else. While hindsight is 20/20, foresight often isn’t, and as an anonymous source tells The Drum, sometimes the signs are written on the wall.

“When the guys from The Marketing Group first pitched the idea,I liked the general idea and concept but my gut told me to be careful straight off the bat. There were too many gaps in the model that were glossed over and it all felt very ‘used car salesman’. Everything was all very slick and it was all about the positives,” said the source.

They said there were many contradictions, particularly to the criteria that the agencies had to fulfil to join the group. One minute stating that they were looking for profitably run debt-free agencies, to throwing out that criteria in the next minute.

It also didn’t help that one of the organisers “didn’t have the background” that the anonymous source could trust with their agency. The source cited a few of the organiser’s businesses as warning signs that the venture might have some smoke and mirrors.

“I felt like The Marketing Group, while the next level up, was essentially an extension of that. I also felt that, while there might have been the potential to make money, the risk was too high and too much was out of my control,” said the source.

While the needle of the cold hard reality of the market has popped the share price bubble of The Marketing Group, there is still controversy courting the publicly listed company. Co-founder Harbour revealed in a tweet on 13 April 2017, that a lender has sold its pledged shares, with the group now seeking legal recourse.

When asked about that, The Marketing Group’s chief executive officer, Adam Graham emphasised that this was an issue between Unity Group and its lender, as the group had pledged shares for a loan.

“It’s important to draw the distinction here, in the early days the Unity Group sat on the board of TMG, but now the board is made up of marketing industry and public company veterans. There is a clear separation from the Unity Group with a well constituted board of non-executive directors going forward,” said Graham.

While investors are quick to punish and slow to forgive, Graham noted the challenge moving forward is to rebuild investors’ trust.

“We’re asking for a fresh slate, a chance to rebuild that trust by being credible and trustworthy,” he said.

While ‘agglomeration’ might not be panning out, it’s hard not to acknowledge the fact that APAC indie agencies want to, and are, punching above their weight, with big brands choosing them to run part of their advertising or marketing accounts. Problems agencies say are holding them back include the costs of pitching, as well as not having money to fall back on when times get tough.

However, many aren’t keen to sell to big groups, citing concerns around deals and earn outs and the control you might lose, though most said they’d still sell to a bigger company if the strategic and cultural fit, alongside the deal making sense financially.

An entirely new board has taken over at The Marketing Group, along with it a new direction, according to Graham. The plunging share price is not an indicator of performance, emphasised Graham, as the group moves forward with finding synergies around the current agencies, as well as concentrating on organic growth.

“Last year we were the third most active company in the M&A space after WPP and Dentsu, followed by a period of consolidation and stitching together. We are bringing the 18 agencies under four business units, and are seeing collaboration within the network,” said Graham.

“This is really just the beginning with the new board. Last year we saw some of the teething pains, but we’ve moved into a different phase with a more mature setup, and are looking to round-off our service offerings in hub countries Australia, Singapore, UK and the US,” he added.

The acquisitions continue as well for TMG, with Ranieri Communications acquiring Paris-based Reflexion Publique. Acquisitions are also to be more cash and less share swaps, rather than the previous 100% share swap, according to Graham, which is in order not to further dilute shareholder value.

Graham believes that TMG is setting itself up as a sweet spot between the big networks and the independent agencies, providing a viable alternative.

“We are targeting a sweet spot, where independent agency owners will realise value whilst maintaining a level of autonomy. We protect their name and culture whilst providing a platform for growth and allowing them to flourish on a global scale and pitch for tier one clients,” said Graham.

Graham remains bullish that, with the twin engines of organic growth within the network and non-organic growth through acquisitions, TMG can still be a force to be reckoned with.

“There is a big opportunity in the market for this disruption and I believe in 5 years time we can be among the top 10 global marketing networks. We are building something truly progressive because we are not anchored to legacy advertising businesses and because we operate in an agile way,” he said.

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