Agency start-ups and scaling in 2021
This is the summary of a presentation that I gave at a PRCA 2021 trend event today. Now is a great time to start or scale-up an agency.
Thanks to the PRCA for organising today’s event and my colleagues for their contributions. I look forward to hearing your views during the discussion.
My trend is agency start-ups and scaling in 2021.
It’s the economy, stupid!
COVID-19 is a crisis with two distinct and contrary economic outcomes. It has been a boom for online retail, big tech and healthcare; and a bust for culture, entertainment, hospitality, travel and events.
Public relations is a reflection of the professional services market. It fell by around a quarter in April 2020 but is recovering according to the latest ONS Monthly index for October 2020. Anecdotal evidence from PRCA members also speaks to this trend.
Source: ONS GDP monthly estimate October 2020
KPMG estimates that GDP was down across the UK economy as a whole by 9.7% in 2020. Its forecast suggests that the UK economy will grow by 4.2% in 2021 and 5.5% in 2022.
Inflation will remain close to zero but interest rates will rise to 1.5% by the end of 2021 and 1.7% by the end of 2022.
Inequality and the crisis
The challenge for the Government as it looks to a recovery is that the economic impact of COVID-19 hasn’t been equal across society.
Middle class professionals in secure work have worked from home, saved money on commutes, seen equity and property investments rise, and stayed safe.
People in public health, public service and roles such as couriers, postal workers and supermarket staff have worked harder than ever on the frontline of the crisis. We owe them a huge debt.
Freelancers and people working in areas of the economy that have shut down such as culture, entertainment, and travel have had an awful time.
Economic opportunity
I read more than a dozen economic and trend reports in preparation for this session and identified eight common themes. They are all the areas where organisations need help. Any one is the basis of a solid agency proposition.
Britain’s place in the world
COVID-19 recovery and rebuild
Climate crisis
Societal fractures
Dispersion of education, healthcare, retail and work
Media change: social and mainstream media
Misinformation
Workflow automation and artificial intelligence
State of the agency market
I want to talk specifically about the opportunity for value creation in the agency market.
Agency holding groups have spent the last three to four years consolidating acquisitions and transformation, and have only been acquiring agencies to plug portfolio gaps.
COVID-19 has accelerated transformation. But share price stagnation vs big tech and healthcare is making it hard to create further value. Deal flow and growth will remain challenging.
Google (114%) and Facebook (174%) have both seen significant share price growth in the last five years. Meanwhile IPG is down 9%, Omnicom down -24%, Publicis is down more than a half (-51%) and WPP down 65%.
Realising value
Founders and agency teams were reluctant to sell in 2020 fearing weak valuations and instead focused on fundamentals: cash, transformation and leaning into areas of opportunity in the crisis.
Exit opportunities for agency founders and teams remain in the private market to build scale, strategic merger and acquisition, and among private equity backed groups.
There is also a growing interest in alternative means of realising value such as lifestyle, management transition, secondary businesses and investments, and management buy-ins and outs.
Investment
There is a wall of capital building among private equity groups in the US and Europe as deal flow ground to a halt during lockdown
This situation will continue throughout 2021. It is unlikely that the market will pick up until Q4 2021, and then it will boom in 2022.
Agency opportunity
There were more than 30 agency start-ups in the UK in 2020. They’ll be more in 2021.
Now is a great time to start building an agency or scale an existing agency, and benefit from low cost, talent, and the boom to come.
My tip would be to look to the opportunities that I cited at the outset of this session.
Thank you for listening and good luck.
