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As children leaving home well know, striking out on one’s own is both exciting and daunting. The opportunity to reinvent oneself, and grow, comes with uncertainty and risk as one leaves familiar shores behind.
Havas, the French advertising agency, must be contemplating this as it prepares for life as a standalone company next year, assuming parent Vivendi’s four-way break-up goes ahead as planned. The group will set off into a rapidly changing world.
After the rise of digital, the ad space is ripe for its second major disruption — this time by artificial intelligence. That is a risk for established agencies. By cutting the labour and time involved, AI should reduce the fees that they can charge for campaigns. It also opens the door to upstart competitors, which can scale up rapidly. See for instance The Brandtech Group, an AI ad start-up founded by a Havas executive and recently valued at $4bn in its recent fundraising round.
Advertising agencies can harness the tool themselves, of course. And major companies have already announced investments in AI — including Havas itself, which has earmarked €400mn. The hope is that they will be able to retain existing customers, and potentially also gain new clients by offering cheaper campaigns. Meanwhile, corporates may reinvest saved marketing spend in other promotional activities.
Perhaps. But the issue is complicated by the fact that a newly independent Havas would be approaching this seismic shift as a relative minnow. By revenue, the group is merely a fifth the size of local rival Publicis. While it managed healthy top-line growth last year, its operating margin hovers around 11 per cent, compared to the larger group at 15. That gives it less headroom to make big bets.
Havas’s size is also an issue when it comes to advertising itself to equity investors. On a revenue multiple of 1 times trailing sales, it would be worth €2.8bn, according to Bernstein Research. That puts it firmly in the mid-cap space. A US listing, as chief executive Yannick Bolloré suggested was under consideration this week, would do little to help it stand out. In any case, it is France’s Publicis that commands a roughly 30 per cent premium on a forward price-earnings basis to US-listed peers Omnicom and Interpublic.
Havas does have one potential advantage as a standalone company. It could embark on consolidation, as its peers have done, using its newly listed equity. In a crowded space, a credible M&A strategy might be one way to grab viewers’ attention.
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