Agencies To Return To Slower Stable Growth, Says Broker

In an advertising and marketing services reports, the broker says that agencies will turn to slower, but more stable organic growth to build their revenues. Agency holding companies have historically grown revenues through three major activities: market share gains (new business wins), growth from existing clients and by acquisition.

Looking ahead, agencies are expected to concentrate more on organic growth and less on acquisitions, not least because there is little room left for continued consolidation via major deals. Merrill Lynch says that this will result in high single-digit or low double-digit growth for the agency networks over the next few years. It has produced a set of forecasts for the major players, as shown here.

Agency Organic Revenue Growth Rates
ÂÂ	ÂÂ	ÂÂ	ÂÂ	ÂÂ	ÂÂ	ÂÂ
ÂÂ	2000	2001	2002	2003F	2004F	2005F
Aegis	18.4	5.2	3.4	11.2	6.7	5.0
Havas	13.8	0.3	-5.8	-5.5	1.1	4.1
IPG	13.0	-2.9	-8.4	-3.0	4.0	6.5
OMC	16.6	8.5	2.8	4.0	7.0	8.5
Publicis	15.0	3.1	-3.9	1.3	5.3	5.3
WPP	15.0	-3.0	-5.9	1.0	4.0	5.0
Source: Merrill Lynch, November 2003

The market During an economic downturn, advertising will lag by six months, as it typically does in a recovery. Advertising fell by more than 6% in 2001 and only staged a muted recovery of 2.5% in 2002. During the early stages of a recovery, at best, advertising tends to grow in line with GDP but in a rapid recovery or an extended one, advertising will outpace GDP, according to the broker.

Analysts forecasts that in the US, real GDP will rise by 4.6% this year and 5.5% in 2004. US advertising is expected to grow by 2.8% and 5.4% respectively. Global ad growth is forecast at 1.9% and 4.7% for this year and next.

Advertising And GDP Forecasts
	2000	2001	2002	2003F	2004F
Nominal US GDP	5.9	2.6	3.6	4.6	5.5
Real US GDP	3.8	0.3	2.4	2.8	4.0
US advertising	10.1	-6.3	2.5	2.8	5.4
Non-US advertising	6.1	-8.6	0.5	0.8	3.8
Global advertising (exc. direct mail)	–	-8.2	1.4	1.9	4.7
Source: Merrill Lynch, November 2003