According to The World Bank, Asia is driving global growth and is expected to remain the most dynamic region past 2030. Representing almost two-thirds of the world's population and is characterised by large and growing conurbations, it is a region that is increasingly attracting strategic interest from the West to compete in these emerging markets and/or partnering with locals to realise the opportunities created by innovation in new markets.
Asia, because of its scale, growth and increasing consumerism, is heightening the focus of marcomms agencies and brand owners alike, with cross-border e-commerce burgeoning and removing many historical barriers to customer access.
Ahead of his appearance at the inaugural Agency Acceleration Day APAC 2019, Chris Beaumont, North Asia partner, Results International speaks to The Drum about scaling challenges for businesses in APAC, what makes agencies attractive and if M&A is the route for everyone.
What are the key challenges for agency businesses scaling in APAC?
Asia is not a region that can be averaged and despite increasing cross-border consumerism there are very distinct market characteristics among the key markets in the region, with strong, entrenched local competitors that can be a barrier to readily scaling an independent agency, and may overstretch limited resources, to gain material traction in ‘local’ markets.
Funding international expansion and cashflow considerations are natural barriers to scaling, as they can quickly overstretch finite resources. Unless such growth is driven by a specific client need then leadership bandwidth can be sorely tested as recruitment and broader skill-set development can onerous. It can make practical sense to plan for both local and network growth. That said, it is worth noting that for some of the P/E and new players, there’s a material premium for cross-border capabilities.
In general, it must be noted that buyers do not have ‘free’ management teams at hand to drop in. A wide and focussed management team is key to driving appetite and growth.
With such dynamism, the demand for talent has never been so competitive. Talent who are comfortable in the c-suite, entrepreneurial, fleet of foot, imaginative, as well as adept working within new business models (cf. flexible and remote working), and able to thrive with multiple cultures are in short supply.
What is the buyer’s market like for agencies in APAC at the moment?
While it is a period of transition for many of the traditional holding companies M&A activity continues to grow, with consultancies continuing to be active and P/E recently firms pursuing ‘buy and build’ strategies, so adding new specialisms to existing portfolio companies, that focus on next-generation marketing. They, along with new entrants including the likes of LinkedIn, Apple and Walmart, are keeping the market vibrant, as many of the traditional network buyers focus their attention internally.
These acquirers are recognising that the ability to identify customers individually and provide them with targeted and personalised marketing is a key driver in increasing sales. Going forward one can anticipate more buyers being of Asian origin, and increasing opportunities for Asian-centric ‘buy and build’ strategies.
What types of agencies are sought after and what makes them attractive?
Agencies that have the (data) technology, creative ability, talent and capabilities to manage and deliver this personalised approach to marketing at scale are in high demand. Single customer view and delivering targeted content is now driving a creative premium. That said, a technology focus is one of the easiest ways to lose money, but with digital and technology capabilities in demand, we are witnessing some increase in acqui-hires. We would envisage that increasingly in the future, another M&A focus would be AI and robotics to enhance the brand experience.
With this accelerating change and, more significantly, the nature of change changing, coupled with an expanding buyer universe there are lots of conversation and new value in new buyers looking for capability/geography. In parallel, with innovation in the agency model, traditional KPIs, such as revenue per head, staff cost to revenue, are changing and less of a focus for some buyers who singularly see value in growth and margin.
Forward visibility is important for the sustainability of margin, which is naturally tied to client retention and development. Indeed, for some, the ability to scale and serve large blue-chip brand owners is a key criterion. In the same vein, staff retention is viewed by some as especially important, with some consultancies reflecting this in growing staff base/low attrition rates, in their deal structures. P/E firms naturally also focus on cash conversion with R&D investment and media spend/timing differences being in front of mind.
Is M&A the route for everyone? What are the alternatives?
With disruptive innovation increasingly creating new value and business models we would recommend all independent firms consider how they can realise the value they are creating and how that can be enhanced with the appropriate partner. This ongoing transformation of the marcoms landscape is fueling the P/e backed deals, with a broad technology and performance marketing focus on customer acquisition, analytics, e-commerce
What other trends are you seeing?
Technology, changing consumer behaviour and disruptive new business models, are forcing unprecedented levels of transformation across the marketing and communications landscape, and several new buyers have entered the space. Clients cannot wait for their agencies to catch up, so M&A is how they are enhancing their service portfolio and talent pool.
We stand at a point of time of increasing volatility, but if there is an agreement it is that this is the Asian century. Asia is in a state of flux, from social, economic and political perspectives, but with newly empowered people it has never been a better time to be the owner of an independent, marcoms, agency focused on sustainable growth.