In recent years, multinational holding companies have been taking over Canadian ad firms.Getty Images/iStockphoto
As the number of independent advertising agencies in Canada dwindles, an award-winning Montreal firm has taken steps to avoid meeting the same fate.
Multinational holding companies have been successfully courting Canadian agencies in recent years, and on those shopping trips they've also come to the doorstep of lg2. Founded in Montreal in 1991, the agency is known for its creative chops, winning five awards at the Cannes advertising festival last year. Unlike many founders of successful agencies, the owners decided not to sell.
Instead, lg2 has spent the last 10 years on a succession plan that would allow the founders to take some money off the table – often a consideration for those who sell – while remaining Canadian-owned. The firm created a second company, lg2345, which acted as a share-buyback vehicle, funded by the company's profits. As the agency made money, that money was gradually used to buy shares from the founders and allocate them to a pool that would then be handed to the employees taking over leadership of the agency.
On Tuesday, that process was completed with the announcement of three new agency presidents: Jeremy Gayton at its Toronto offices, Mathieu Roy in Montreal and Mireille Côté in Quebec. The founders will continue to hold minority shares in the Toronto office and will remain for at least two years as advisers, and co-founder Sylvain Labarre becomes chairman.
The temporary company was dissolved and the shares are now held by lead employees. The agency has grown to more than 230 employees over three offices, and it's among a handful of independent agencies so far bucking a trend.
"We take a lot of pride in remaining Canadian," Mr. Roy said.
In January, Tokyo-based marketing agency holding company Dentsu Aegis Network Ltd. acquired Toronto-based Grip Ltd. Last year, Montreal-based ad agency Sid Lee sold to Tokyo-based Hakuhodo DY Holdings Inc. The year before, Chinese public relations company BlueFocus Communications Group took a majority stake in Quebec-based Vision7 International, owner of ad agency Cossette, for $210-million (U.S.). Britain-based WPP PLC bought Toronto's Taxi Communications in 2010 and John St. in 2013.
Meanwhile, some agencies held by larger companies have been merged or dissolved: Last year, New York-based Interpublic Group shuttered Toronto agency Lowe Roche, and WPP folded Young & Rubicam in Toronto after almost 80 years in business. Omnicom Group Inc. merged its agencies Juniper Park and TBWA Toronto into one entity called Juniper Park\TBWA.
"We've seen the amount of consolidation and acquisition over the last year and a half. Our founders made the decision that that wasn't the route they preferred," Mr. Gayton said in an interview. "Independence simplifies our business. We don't answer to a holding company, we don't answer to a private equity firm. That liberates us to make decisions with a long-term view."
The industry is under stress: Marketers are cutting budgets, and that means that agencies' profit margins are also squeezed. When agencies that exist within networks see clients move elsewhere in search of cheaper services, they are beholden to the holding company's quarterly reporting, as well as to their own health, and sometimes have to cut staff because of priorities in New York or Paris.
Lg2 has been growing – its revenues have more than doubled, to $30.5-million over seven years ending in 2015.
"The founders received offers from networks, but very quickly the conversation always reverted back to finance, finance, finance, money," Mr. Roy said, adding that the agency prefers the freedom to keep staff even in down times or to say no to business that is not a creative fit for the agency. "Our operation is absolutely at par with the industry in terms of profitability, but this gives us the room."
The company is set up to transfer shares to future leaders, so that as people move in and out of the agency, it can remain independent, he said.