Mark Penn: ‘Advertising has to go where people’s time goes’

Mark Penn’s US group has made 16 investments, including a dozen agencies, since he launched Stagwell in 2015, most recently buying UK-based performance marketing outfit Forward3D Group in December.

He shrugged off the fact that most of the big, “legacy” ad groups have seen their share prices tumble in the last 12 months as FMCG brands cut fees.

“That’s generally good news for people like us who are making investments like this,” Penn, the managing partner of Stagwell, said, referring to the acquisition of Forward3D.

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“In general, digital marketing services have been undervalued, precisely because people didn’t see it as important to the economy as it’s becoming – not only with the move to digital platforms from television but you’re also seeing tremendous growth in e-commerce. I think it’s a genuinely valuable space.”

“The big difference with the traditional holding companies [compared to a business such as Stagwell] is they have 70% legacy assets.

“As television buying has taken a downturn, the value of legacy assets has declined while the value of digital assets has increased.”

Penn, who made his name as chief executive of the WPP-owned PR agency Burson Marsteller and chief strategy officer at Microsoft, described Stagwell as “a digital-first alternative to traditional agency holding companies”.

See also: Pharma is reluctant to adopt digital in R&D: survey

Stagwell has talked about making $750 million worth of acquisitions.

Penn said he and Steve Ballmer, the former chief executive of Microsoft, are the only investors although “we may, as we continue, seek additional investors”.

He would not “speculate” about Stagwell’s future acquisition plans but sees opportunities in media-buying and in international expansion outside the US.

Stagwell is adding Forward3D to a portfolio that already includes performance marketing shop PMX Agency, public relations firm Finn Partners, strategic comms agency SKDKnickerbocker and research outfit Harris Insights & Analytics.

Stagwell claims to manage or advise on between $750 million and $1 billion of media-buying.

See also: Expect healthcare agencies to make more digital acquisitions: report

Penn played down the likelihood that brands will take their media and other marketing services in-house, rather than use agencies.

“As complexity grows across platforms, I see the in-house solution is typically not a satisfactory one,” he said, noting that companies might “experiment one way” and “then go back”.

He went on: “The complexity and the ability to get significant ROI out of hiring agencies in this area suggests to me this is principally an agency task.”

Forward3D was founded in 2004 and has grown to 300 staff in 11 offices across Europe, Asia and America.

See also: Sudler & Hennessey acquires West Coast digital marketing firm

Gary Reid, managing director for EMEA and APAC, said selling to Stagwell can accelerate its expansion plans and help Forward3D move into content, creativity and PR since its own strength lies in online direct response.

He sees opportunities in a digital world where Google and Facebook and, in future, Amazon are going to take the lion’s share of media spend.

“The [ad agency] holding companies have this tradition of buying media and creating value out of the media rather than [out of] the task of activating and optimising that media, and that is where they have fallen behind as they have hung onto the old trading deals,” he said.

See also: Drugmakers begin to up media controls, in bid to clean up digital ad supply

Digital marketing has faced multiple questions about fraud, measurement and effectiveness in the last 18 months but Penn remains bullish.

“Advertising has to go where people’s time goes,” he said. “It’s irrefutable that people’s time has come from other forms of media to an online space.

“Are there going to be bumps in the road? Absolutely. The underlying trend suggests marketing has to shift to either where people are spending their time or spending their dollars.”

Stagwell is just one of a number of new entrants in marketing services amid growing competition in the agency M&A market.

See also: Digital IDs become focus as drugmakers seek to track doctors’ behavior online

Consulting giants such as Accenture and Deloitte, IT firm Cognizant, investment fund You And Mr Jones, talent agency group Endeavor and UK holding company Be Heard Group have all been buying agencies.

The consulting firms, in particular, are wooing clients by claiming to manage the “end to end” customer experience from product development and branding to sales and distribution.

Penn said Stagwell’s focus is on brand image and that “requires a lot more than engineers and people from management consulting companies to really provide the answers”.

This story first appeared in Campaign.