Havas puts faith in acquisition strategy

Fifteen months ago Alain de Pouzilhac, chairman and chief executive of Havas Advertising, said he would be “another unemployed guy” if his company failed to merge with a US or UK agency network by the end of the year.

Today his strategy of finding an agency partner lies in tatters. And in the interim Havas has managed to lose &£100m of Procter & Gamble business.

But De Pouzilhac still has his job and, with the blessing of his shareholders, has embarked on a radically different three-year plan to catapult his agency into the world’s top five marketing services groups. This will be through acquisition and organic growth. “My main shareholders trust me,” he says.

How this charismatic Frenchman has convinced his investors, particularly the main stakeholder Vivendi, to continue to back him says much about the limited options for single agency networks.

Outside the three largest agency groups – Omnicom, InterPublic and WPP – there is a second league of players with just one strong international network each.

Havas, which owns the EURO RSCG network and the weaker “sub-network” Campus, is one such group, together with Young & Rubicam, the MacManus Group, Saatchi & Saatchi, Cordiant, Dentsu and Leo Burnett. It is widely believed these second rank agencies must eventually merge to achieve critical mass and avoid being left further behind as the world’s “mega-clients” prune smaller networks from their rosters. Havas was itself a casualty of such cost-cutting when P&G dropped EURO RSCG six months ago.

BBDO Europe business development director Julian Ingram says: “They need critical mass to generate the volume to go through media buying, which is a crucial focus point in communications now, and to offer a range of complex and diverse services to clients around the world.”

But for De Pouzilhac, any hopes of a merger with a UK agency evaporated when it repeatedly became clear that Havas would lose control in such as deal. He says: “I’ve seen 20 competitors. We wanted to organise a merger of equals. But gradually we saw people wanted to buy us.”

Vivendi, which originally owned 38 per cent of Havas but has reduced this to 29.9 per cent, pushed for a merger to dilute its stake. This would allow it to concentrate resources on pay-TV and telecoms.

The utilities to communications giant, which owns 49 per cent of European pay-TV company Canal Plus, increased its 17 per cent stake in BSkyB last week to almost 25 per cent, putting further pressure on Rupert Murdoch to agree to an eventual merger of BSkyB and Canal Plus.

De Pouzilhac insists Vivendi’s commitment to Havas remains despite the switch to building the network by acquisitions.

This task has been greeted with scepticism. Observers question whether there are enough quality, independent agencies of size available for purchase. Last week, Havas bought Lopex, the UK marketing services and PR group for &£87m, but it has a lot of ground to make up, with an estimated gross income gap of $300m (&£197m) between Havas and its biggest rival, Y&R.

Yet De Pouzilhac says income expansion is growing above target and the company has a war chest of FF1bn (&£100m). He says Havas acquired FF1.8bn (&£180m) worth of gross income through purchases this year, including Rempen & Partner in Germany and Spanish media independent Media Planning. Within three years, the aim is to double the 1998 gross income of FF5.7bn (&£570m). One of the most pressing tasks is to buy an agency in the US for the Campus network.

De Pouzilhac argues he is in a position to build a modern network piece by piece that will meet the needs of clients in the next century. He plans to shift the proportion of marketing services to traditional advertising from 45 per cent and 55 per cent to 60 per cent and 40 per cent respectively, and he plans to concentrate on new sectors such as interactive advertising.

He says the piecemeal method of growth will succeed because by acquiring independent agencies with strong client relationships in their market, Havas will capitalise on client centralisations. He adds: “If you work well for a global client in one country, you win this client on a regional basis and then worldwide.”

But one senior executive at a rival agency network says: “The French are completely hopeless at managing international business. You need diplomacy, a lack of arrogance and a consistent strategy, rather than believing your culture is right. If you put a Frenchman in a room with an American – another nation that thinks its culture is right – you have a recipe for disaster.”

De Pouzilhac, who says he counts the US boss of EURO RSCG Bob Schmetterer as a personal friend, dismisses this as old-fashioned. He adds: “I don’t have the General de Gaulle complex. That was 50 years ago – I wasn’t even born then.”

But whatever his internationalist outlook, De Pouzilhac’s ambition of breaking into the world’s top five will not be easy. Y&R is firing on all cylinders, winning Barilla (&£32m) and Danone (&£128m) in the past six months, and will not relinquish its position without a fight.

DMB&B North America president John Farrell says: “Realistically there’s an awful lot of competition out there to make strategic acquisitions, including from us. There are enough good sized independents in most markets, but everyone knows who they are and everyone is quite interested in them.”

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