A Chinese manufacturing firm building a new digital holding company?

According to insiders, shareholders of the two digital agencies signed letters of intent to be wholly acquired on 24 May.

Company individuals will retain their respective brand and operational ownership, but also enjoy an advantage of pitching for future business as a combined unit using multi-agency resources.

Just two months ago, the same local manufacturer took the first step to enter digital marketing when it reportedly acquired up MediaV for RMB340 million ($54 million).

Whether this is a solid strategy is debatable since there is no business synergy between the parent and its new subsidiary firms. But this echoes a familiar story from 1985 when Sir Martin Sorrell took a stake in Wire and Plastic Products, a UK manufacturer of shopping baskets, as a nucleus for acquisitions that built the advertising empire that is WPP today.

As with Wire and Plastic Products, Leo Group is essentially acting as a holding company for a range of diverse (read: unrelated) businesses, adding to its core fields of agricultural irrigation, industrial water treatment, petrochemical engineering and garden machinery.

If Leo Group is successful in growing this concept, it could become one of the first companies within China that has the ability to provide clients with a more comprehensive suite of digital marketing solutions. This is, of course, the likely hope of shareholders but observers have cast doubt on the issue of integration.

Other local listed companies, such as BlueFocus, have already been providing digital, PR and advertising services as a package. A smaller example of a public entity is Guangdong Advertising, which operates in the brand management and media agency businesses in Southern China.

According to industry sources, the demand-side platform, MediaV, initially approached Arkr and Amber on behalf of Leo Group for negotiations, aiming for collaboration for a backdoor listing to increase the chances of institutional investment, which could support further expansion of the new holding company’s digital ambitions in the mobile and O2O fields.

Leo Group believes that the internet industry represents the future of economic development, and in view of this, the company decided to invest in exactly that. Sources close to the firm reveal these acquisitons are not the last but the first in a series, in order to create a more complete supply chain.

The larger acquiree, Arkr Group, owns two businesses: Arkr Digital and Vitamine. At its inception, it was identified as a cutting-edge digital agency, and also selected as one of the best independents by Effie China and Campaign Asia-Pacific. In recent years, the group won more than 80 creative, interactive and public relations awards for various categories.

Long-term clients include Sephora, Metersbonwe, Michelin, Clarins, Mondelez, Okamoto, Chando, Yunnanbaiyao, North Face, L'Oreal, Johnson & Johnson, Puma, Michael Kors, Moët & Chandon, Citibank, Ferrari and others.

As for Amber Communications, its work at the 2010 Shanghai World Expo for Coca-Cola was deemed impressive, and the agency also delivered consistent performances for Hennessy, Dulux, Galeries Lafayette, Lindt, Disney English, Dell and Bosch.