Niche work - if you can get it: Marketing groups know there's money in the margins

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By Barry Dudley, Partner

November 1, 2013 | 6 min read

Last year we wrote a few times about the Mission Marketing Group, the AIM-listed and London-based integrated group, which made a couple of acquisitions (Balloon Dog and Addiction) in the latter part of 2012.

The Mission's David Morgan

Mission is an interesting concept – it comprises 11 agencies (including Big, Bray Leino, Story and Robson Brown) employing 800 people in 18 offices. The Group likes its agencies, most of which are regionally-based, to get on with it. Over the past few years, this decentralised, “entrepreneurial” approach seems to have worked well. Profits are steady, if of late a bit unspectacular (although it reported 15 per cent profit growth for 2012), due in part to the restructuring of some of its acquired businesses and the scaling back of the Aviva account at Bray Leino.

But according to group chairman David Morgan in The Drum last month, “the difficulties… are now behind us”. And, last last week, the group hit the M&A trail again when it snapped up medical communications Agency Solaris Healthcare Network Ltd (or Solaris for short) for an undisclosed sum.

Based in Richmond, Surrey, this independent, management-owned healthcare agency offers its clients (who include GSK, Bayer, Nutricia, Spanish pharma giant Almirall and the high-flying Hungarian biotech company Gedeon Richter) a range of services including strategic communications, medical and patient education, oncology expertise and a rare disease specialist service.

The group’s existing Bray Leino Healthcare business will join the Solaris team and trade under the name of Solaris, forming what Morgan calls “a blend of scientific acumen and creative communications experience.”

In a statement, Morgan added: "Solaris is an exciting young healthcare agency that truly understands the demands of the ethical world. Their approach to clinical and medical education issues and the patient community is refreshing. By combining our existing Bray Leino Healthcare team under the Solaris brand, we will create a unique understanding, from both the clinical and communication aspects for our clients."

The publicity and Solaris’ rather modest size aside, this seems a smart acquisition by the Mission team. Solaris is a very focused, specialist shop with some niche offerings in oncology and rare diseases, which fits in with Mission’s other specialist shops. It also allows the agency to play a David against the marcomms Goliaths. Unless you have the scale and reach of an Omnicom or WPP, there is little point in acting like them – but there will always be a place for specialist experts.

As you’d hope, the senior talent is staying: Solaris founder, Tony Yates, who has over 30 years' experience in the pharma industry, will become chairman of the new business. I suspect that we will see Solaris making a significant contribution to the Mission’s growth and prospects, particularly when you consider the size of the pharma industry.

Outside of healthcare, another niche ripe for development is sports marketing. Considering the value of sport worldwide was recently estimated (by PriceWaterhouseCoopers) at more than $113bn annually, sports marketing – which encompasses everything from marketing events (eg the Olympics) and teams or associations (NFL, Manchester United) to sports themselves and encouraging public participation - could be very big business indeed.

Chime Communications, the London-listed marketing services group which includes VCCP, Good Relations and Opinion Leader Research, last week bought JMI, the world’s biggest motorsport marketing agency for a whopping $70.6m (about £44m); Chime is raising £25.6m in a share sale to help fund the deal, which is dependent on shareholder approval.

JMI, which negotiates deals between brands and Formula 1, IndyCar and NASCAR teams, will be incorporated into CSM, Chime’s sport and entertainment offering, which is chaired by Lord Coe and which includes Essentially, Icon, Fast Track and iLuka.

Despite the high cost of the acquisition; and the fact that Sir Martin Sorrell’s WPP, Chime’s biggest shareholder at 20 per cent, has publicly voiced his/its displeasure at the share sale, Chime obviously believe it’s a smart move.

It gives Chime a bigger share in the growing sports marketing business, marks its entry into motorsport and boosts its footprint in the US, where it was previously under-represented; and also builds on the group’s success at the London Olympics. Motorsport is currently valued at about £4bn – less than football, but it is, by common consent, the world’s richest sport, and, thanks to Formula 1’s new-found popularity in Asia Pacific and India, becoming wealthier by the year. In addition, NASCAR is the second-most watched sport in the US after American Football – currently fans buy a staggering $3bn worth of NASCAR-licenced merchandise a year.

Even better is the fact that of JMI’s 130 staff in the US, UK and Hong Kong, most will be staying on board, including founder and CEO (and former professional driver) Zak Brown, who will also head up CSM’s brand-new motorsport division and its business development team. JMI’s senior management have over 100 years’ experience in motorsport marketing between them – not bad for a company only founded 18 years ago.

There are a couple of potential pitfalls however. JMI reported an operating profit of $4.7m on revenues of $40.8m in 2012, so it would appear that Chime has paid an above average multiple of annual profits. But, perhaps the first three quarters of 2013 show increased profitability, and one has to assume that this is about a big strategic step to bolster their US presence and build the sports marketing offer.

Then there is the challenge of their biggest shareholder being an unhappy one. We understand that as part of the share sale to fund the JMI acquisition, WPP had sought to increase its stake from 20 per cent to 29.9 per cent, then 27.5 per cent both of which were rejected, while WPP rebuffed Chime’s offer of 24.9 per cent.

I think we can look forward to a rollercoaster ride over the next few weeks…

Barry Dudley is a partner at Green Square, corporate finance advisors to the media and marketing sector.

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