Getting Back To Work

Look who’s writing the checks now.

Client spending is up. Agency buyouts are all but over. Organic growth is back, a welcome change from the acquisition blitz that defined the turn of the century.

Marketers are spending more with their current agencies, and revenues are up for two-thirds of the shops on our list. In all, 77 agencies report at least some two-year growth, from a scant 0.5% (No. 40 Guild Group) to a whopping 1,634% ($2.3 million in new revenues for once-tiny Concept One, No. 27).

Ten of the top 25 agencies said at least half their 2003 growth came from current clients. (Spending bumps made up 24% to 48% of growth for the rest.) Organic growth is more stable — and more sustainable — than acquisitions.

Of the 20 Top 25 shops that broke out their revenue growth for us, only one bought business in 2003: Equity Marketing’s September purchase of SCI Promotion Group added $20 million to $25 million in billings. (The five shops that didn’t report breakouts are part of publicly held networks that forbade financial disclosure; see How We Did It for more details.)

Some shops on the list changed hands last year. WPP Group got 141 Worldwide as part of its August purchase of the failed Cordiant Communications Group. Omnicom Group bought Pierce Promotions & Event Management in August and added it to its event marketing division, The Radiate Group. Grey Global Group set a joint venture with food broker Crossmark to merge J. Brown/LMC Group with Crosscut, a first for the industry (see p. 84).

This year may see a few acquisitions. Japanese conglomerate Dentsu is talking with Tipton & Maglione (No. 56); the New York City shop has a two-year-old alliance with Dentsu’s U.S. division, DCA, that swaps T&M’s promotions and graphic design work for DCA’s advertising and p.r. The GEM Group (No. 33) and Aspen (No. 52) began as rollups to be groomed for sale. And DVC Worldwide’s primary backer, Lake Capital (since 2000), is known for building solid rollups, then selling — as it did with 141 Worldwide.

Acquisition hangovers

The 1998-2001 buyout binge gave some shops indigestion. Many didn’t find the synergy they hoped for in big networks — then felt increasing pressure to pick up the slack for ailing ad siblings (August 2003 Promo).

The pendulum is starting to swing back with divestitures, realignments and startups. Marketing Drive Worldwide (No. 68) sold off or moved business to other Interpublic Group of Cos. agencies in order to focus on its core expertise, national promotions and co-marketing. It closed or sold offices in the U.K., Paris and Asia, and ended 2003 with 10 offices in North America, focused on organic growth.

Hawkeye|Group sold off two telemarketing and fulfillment businesses (combined revenues: $32.67 million) to focus on its core promotions and direct-marketing work. (Excluding those units, revenue rose 11.9% from 2001.)

Alloy, Inc. shifted $3 million in business to AMP Agency from two smaller sister shops as it realigned disciplines (see Agency of the Year on p. 46).

A few veterans of network buyouts started their own shops again. Mark Shapiro, the Momentum North America CEO let go in May 2003, founded Cha-Ching in St. Louis; Botsford Group was reborn last month under founder David Botsford after parent Interpublic Group of Cos folded the original Atlanta shop and absorbed its clients and staff. Neither is on the list — they’re too young — but are noteworthy as harbingers of more second-chance startups as disillusioned execs complete their earn-outs.

Apples to Potatoes

It’s always hard to compare shops — they differ so much by size, specialty, client roster and locale. Harder still is comparing the work; campaigns are so different in scope and strategy. In all, we look for results (read: sales figures and other quantifiable campaign metrics), for bright ideas, for a distinctive fit to the brand.

This is the first year that the Promo 100 has focused specifically on U.S. revenues. That affects the eight shops that reported overseas revenue (see chart on p. 61), but it gives a more accurate picture for marketers interested in U.S. expertise, and a more direct comparison for all shops listed.

Four agencies are newcomers to the Top 10 this year:

Tracy Locke Partnership rose to No. 3 (from No. 17) on its size and quality campaign work.

Velocity Sports & Entertainment hit No. 5 (from No. 25) with steady growth and respectable work.

EastWest Creative ranked No. 6 (from No. 43 in 2002 and a year off in 2003) with the highest-scoring campaign work and decent growth.

Arnold Brand Promotions landed at No. 8 in its first time on the list, thanks to excellent campaign work.

Three shops have returned to the Top 10:

No. 1 GMR Marketing (No. 12 in 2003, No. 1 in 2002) rebounded with respectable growth (on a large revenue base) and ace campaign work.

No. 7 Draft (No. 11 in 2003, No. 3 in 2002) is biggest in revenue and presented strong campaign work.

No. 9 Momentum North America (No. 21 in 2003, No. 4 in 2002) is among the biggest shops, and scored well with its campaign work.

Some familiar names have dropped from the top of the list. The top four shops in 2003 have fallen from the Top 10 — or off the list altogether.

360 Youth, No. 2 last year, conceded the stage to sib AMP Agency and didn’t even enter this year (see Under the Radar on p. 61).

DVC Worldwide (to No. 13, from No. 1), with half its work in the U.K.

141 Worldwide (to No. 45, from No. 3), which lost an estimated $14 million in U.S. revenues when Allied Domecq left in October.

CoActive Marketing Group (to No. 26, from No. 4), whose 2002 Eat Like a Champion campaign dominated our campaign work ranking and was a tough act to follow.

The steady Eddy? PowerPact, No. 5 last year and this, thanks to stable growth and consistently good campaign work: Its sales force program for Aventis’ breast-cancer drug won PRO Awards in 2002 and 2003.

One thing readers won’t notice is how many agencies didn’t make the 100 list. We had more qualified entries this year than ever before — a sign that business is up and agencies are eager to share their stories. That bodes well for the industry this year and beyond.

“Reasonable Range”

The Marketing Agencies Association Worldwide (MAA) has estimated that the average net revenue per employee within a U.S. promotion agency is $125,300. Because of variations among promotion disciplines (such as strategy, execution, creative, fulfillment and games administration), MAA suggests that a variation of 25% above or below that benchmark is within the “reasonable range” of revenue productivity per employee.

Agencies reporting results outside this range may be questionably high or inefficiently low, per MAA. To facilitate such comparisons, the Promo 100 ranking chart (beginning on p. 62) includes per-employee revenue figures (for full-time staffers); that information does not impact the rankings.

How We Did It

PROMO’s editors use a proprietary formula to arrive at the PROMO 100 rankings. It has been refined over the years, but in essence, agencies agree to be evaluated quantitatively (on net revenue and two-year growth) and qualitatively (on the quality of work in three campaigns conducted during the past year).

Agencies submitted a copy of their corporate tax returns or a letter from an outside auditor certifying gross billings and net revenues (gross billings minus pass-through charges, such as premiums or printing) for 2001, 2002 and 2003. (In some cases, a letter from the chief financial officer of an agency’s parent company was accepted.)

Agencies also provided descriptions, quantifiable results and art from three campaigns that best reflect the quality of work in 2003. PROMO’s editors evaluate all campaigns and give a numeric score; agencies are ranked according to their total tally, and that rank is factored into agencies’ overall score.

Agencies were ranked three ways: by 2003 net revenue, by net-revenue growth from 2001 to 2003, and by campaign work. The three elements were added together as equal parts (33.3%) of an agency’s total final score.

To set the Top 25 ranking, PROMO’s editors also considered recent account wins and losses; industry awards; management stability; average length of service with clients and agency-of-record status; and breadth of marketing services.

This year, sixteen agencies did not provide verifiable revenue data. Their parent companies — the four publicly held agency networks — forbade them from disclosing financial data, citing the 2003 Sarbanes-Oxley Act governing financial disclosures. PROMO editors estimated these agencies’ net revenues using verified data from 2001 and factoring in account wins/losses, acquisitions and spending fluctuations among current clients.

This is the second year that PROMO has had to estimate revenue for these agencies, so the revenue and two-year growth data come with this caveat: These numbers are not verifiable. All estimates are marked with an asterisk.

Rank by Growth

Rank by Campaign Work

Rank by Revenue

UNDER THE RADAR

Agencies from the 2003 PROMO 100 that are not ranked this year (and why)

360 Youth
didn’t enter, to quell confusion with sibling AMP Agency; see Agency of the Year, p. 46

Alcone Marketing
didn’t enter

ARC
merged with Frankel to form ARC North America

Botsford Group
folded by parent IPG; reopened under founder David Botsford in May 2004

Catalyst
rescinded its entry

CCM
entered but did not qualify

CMI
didn’t enter

Entertainment Marketing, Inc. folded in May 2004

HWB
didn’t enter

Impact Marketing & Promotions entered but did not qualify

Integrated Marketing Services of New York
didn’t enter

Kicking Cow
didn’t enter

KK&A
didn’t enter

Langworth Pantel
became Langworth Promotion Group in December 2003 when principal Frank Langworth bought out partner Mark Pantel

Promotion Network Inc.
didn’t enter

Launch Creative Marketing
entered but did not qualify

Marketing Edge
entered but did not qualify

Marketing Expressions
entered but did not qualify

Ott Communications
didn’t enter

Shumsky Enterprises
didn’t enter

Unicom Marketing Group
entered but did not qualify

Upshot
now part of Equity Marketing

Ventura Associates
entered but did not qualify