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Inside The Marketing Group: pooling SMEs under an umbrella to help them succeed

Taken on their own, sticks can be snapped. Bundled together, they are not so easily broken. This analogy appears to underpin the operations of The Marketing Group, which seeks to unite SMEs in the marketing and advertising industry so that each can ‘punch above their weight’ on their own terms.  

The Marketing Group was launched in June 2016 as a holding company for a quartet of marketing and advertising agencies from the UK and Singapore led by Chris Reed (Black Marketing), Laurent Verrier (One9Ninenty), Ross Anderson, (Nice & Polite) and Aaghir Yadav (Creative Insurgence). While the entrepreneurs retained operational control of their own agency, grouping together under a publicly-listed umbrella enabled each to pool expertise, gain share liquidity and achieve the scale necessary to compete with multinationals. Since it went public on the Stockholm Stock Exchange, The Marketing Group has grown to become a collective of 17 agencies with 30 offices in 8 countries, including Australia, and EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) of €8 million.

Callum Laing, co-founder and non-executive director of The Marketing Group, spoke to Dynamic Business about the growing collective and how SMEs can compete with multinationals by pooling together with industry peers.

Dynamic Business: What problem is the group addressing for SMEs?

Laing: Although Australia boasts more than one million SMEs, they attract less than 20% of total private investment, which makes it tough to transition from exciting, entrepreneur-led business to ‘grown-up’ multinational company. Often they’re considered too small to warrant investment or too risky to attract it. Also, the lack of share liquidity with privately-owned SMEs can deters investors, who wonder how they will get their money back.

The notion that you ‘need to be big to get big’, otherwise known as the scale paradox, is another challenge for SMEs seeking to scale. It’s the idea that to land the biggest margin contracts, companies need to be perceived as big enough to handle them, regardless of talent or expertise within the business.

One way to overcome these challenges is a ‘agglomeration’, which is a new collaborative approach we are pioneering at The Marketing Group. It involves a number of small businesses, within the same fragmented industry, grouping together under a central holding company which then goes public on a major global stock exchange. Each entrepreneur swaps private stock for public stock in the holding company but continues running their business just as they were before. Their brand, their hiring and investment decisions remain under their control and each year they contribute profit to the group they earn more shares in the public vehicle. Not a traditional M&A (mergers & acquisitions) earn-out but an earn-in.

Dynamic Business: What ‘extra muscle’ do SMEs gain from agglomeration?

Laing: The agglomeration model offers entrepreneurs immediate scale and the benefits of being part of a much larger group, including a bigger consolidated balance sheet and access to a network of similar, like-minded small businesses offering products or services that can be offered to their own clients. Consequently, an entrepreneur immediately transforms their company from a small business into a large multinational public company, now able to compete for the largest and juiciest contracts and achieve better procurement deals.

As a large public company, an agglomeration also provides share liquidity which opens the door to public market capital and investors that would otherwise shy away from the SME sector. For the entrepreneur, this liquidity offers the possibility of taking some cash off the table and provides a viable currency with which to fund tactical acquisitions or attract senior talent.

The Marketing Group is an agglomeration of marketing and advertising agencies and will continue to focus on this sector, where we see significant growth opportunities. However, the beauty of the agglomeration approach is that it can be applied by entrepreneurs in any fragmented industry and across national boundaries. Where ever there are large numbers of small, independent companies there is the potential to roll those businesses together into an agglomeration.

Dynamic Business: Does the group drive collaborations between its members?

Laing: Unlike with traditional M&A roll-ups, we do not force collaboration and operational synergies on member companies but instead seek to empower entrepreneurs and their senior team to continue to run their own business successfully. We’ve found that since the interests of all the entrepreneurs in the group are aligned, collaborations and synergies occur naturally which creates a more cohesive client offering and reduces costs. Just try and stop entrepreneurs from working together when they’ve got a vested interest to do so!

Dynamic Business: How many Australian agencies are in the group?

Laing: We currently have two Australian companies in the group, Lead Generation Company based in Melbourne and Channel Zero in Sydney. Australia is an attractive market for us where we see significant growth opportunities. In November, the group announced plans to acquire several new of Australian companies.

The Australian marketing and advertising industry is highly fragmented and comprises numerous small and successful agencies. This creates significant opportunity for them to grow through agglomeration model by joining The Marketing Group. The industry fragmentation together with the strong forecast growth of the sector in Australia, with add spend expected to increase 4.7% annually over the next five years, makes Australia a particularly attractive market for the group.

Dynamic Business: What is the selection criteria for potential members

Laing: Companies are often referred to us by entrepreneurs who are already part of the group. In any case, we have a preliminary discussion to find out more about the business, ensure the ambition of the founders matches ours and make sure they match our financial criteria. We have a due diligence team that carries out a stringent financial and legal audit, including a review of the companies audited accounts.

Each business that joins The Marketing Group must be doing at least SGD 0.5 million in profit and be run by a leader in its field. Further, the founders must be committed to continue leading and growing their business and not just looking for an exit.

Ultimately, the other founders have the final say on whether a new company can or can’t be brought into the fold.

Dynamic Business: What plans does The Marketing Group have for 2017?

Laing: The Marketing Group has a strong pipeline of mature, profitable and debt-free marketing and advertising business ready to join the group which will be accretive to EBITDA and which will broaden our service offering and strengthen our position in important geographical markets.

Ultimately, our ambition is to create a global digital and marketing agglomeration offering a full suite of services and able to compete internationally with the existing major players. The current market leader has 2,600 subsidiaries, so that may be a nice target for us to have.

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James Harkness

James Harkness

James Harnkess previous editor at Dynamic Business

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