Buying growth is not enough

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It's easy for ad agencies to buy growth. It's harder to grow your own. With fewer blue-chip agencies left to be bought, the winners among holding companies will be those that show how skilled they are at running, and growing, what they already hold.

"Organic growth" is all the buzz on Mad. Ave. John Dooner, chairman of the acquisitive Interpublic Group of Cos., last month vowed that coming profit increases will be "fueled primarily by organic growth." This from a company that lives for the deal. Interpublic bought 55 companies in 1999 and 70 in 1998. ("Group of Cos." seems limited. How about Interpublic Boatload of Cos.?)

It's easy for McDonald's Corp. to grow revenue by adding stores-at least until there aren't many places left for new stores. And it's easy for Interpublic and its brethren to boost revenue by buying revenue. Interpublic a year ago reported 1999 revenue from commissions and fees increased about 9%, excluding acquisitions. Throw in acquisitions, and Interpublic said revenue jumped 15.2% to $4.4 billion.

End of story? Not quite.

After buying ad agency Deutsch, market researcher NFO Worldwide and a few other ventures in so-called pooling of interests transactions in 2000, Interpublic inherited their past revenue-allowing it to restate results to show it had 1999 revenue of about $5 billion. With this year's purchase of True North Communications, Interpublic should add another $1.4 billion to its 1999 revenue. Welcome to revisionist history.

Deals let holding companies increase future (and past) growth. But that game is ending. There are only a few big prizes left, such as Grey Global Group, Cordiant Communications Group and maybe Bcom3 Group.

Mostly, holding companies will grow in the future by building their own businesses. Some growth will come from general increases over time in ad spending. Some will come by poaching clients. Some will come by selling more non-advertising services-promotion, direct marketing, PR. No longer will growth be as simple as issuing stock to buy agencies, their portfolios of clients and the revenue from those clients.

This is good news for marketers, if not for dealmakers: Growth will come to holding companies that best serve their clients. That puts holding company attention where it belongs: on getting marketplace results from their work.

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