Barry Lustig
Dec 18, 2017

Why Bain’s ADK buy is the most important story of 2017

And why the advertising industry should be optimistic about it.

Why Bain’s ADK buy is the most important story of 2017

Bain Capital's takeover of ADK, the third largest agency in Japan, is big news. Even if you don’t care about the Japanese communications market or haven’t even heard of ADK, it’s now time to tune in.

For those of you who are not familiar with ADK, it actually is ‘big in Japan’. It employs over 3,500 people and has consolidated billings of over US$3 billion annually. With relationships with nearly every major Japanese company, smart employees and any number of assets, including media buying capabilities as well as content creation and production, ADK is a formidable agency by any standard.

ADK was in a long and unhappy marriage with WPP. Management courageously invited Bain to buy the company to a) boot out WPP and b) reorganise the company so it could better compete in the future. ADK leadership knows that they and many of their colleagues will have their jobs (or job status) change dramatically in the process of Bain Capital’s forthcoming realignment of the company.

To be clear, Bain Capital is a private-equity company that purchases undervalued companies, restructures them to increase their value, and then sells them at a profit. Bain has no ambition to retain ADK, its people or selected assets into its overall business.

It sounds mundane, but let’s say it again, as this is an earthquake for our industry: Bain Capital, which also recently acquired Toshiba’s chip business, and is currently revamping companies like Symantec and Toys ‘R Us, sees ADK as a company which can be restructured and sold for a considerable profit. 

There are good reasons why you should be paying attention to this story.

1. This an optimistic sign for the future of our industry.

Bain Capital is agnostic in the kinds of companies it chooses to acquire. The fact that it sees untapped value in an advertising agency is good news for all of us.

Many (most) people in Agencyland are wondering how we will survive as businesses in the medium to long term. Bain is betting real money and resources that it can better create a stronger and more competitive business model for agencies.

2. Bain Capital’s plans for ADK may help us transform our own agencies.

Regardless as to whether or not Bain Capital is successful, we should all study its moves. Agency leaders are well aware of our industry’s challenges. For the most part, though, most have only made superficial attempts to increase competitiveness. Some of this has to do with age-old industry paralysis and the instinct for self-preservation. It is also the case that very few agency leaders, especially those who work for holding companies, have the flexibility to take financial risks and try new things.

Bain Capital will be able to take some risks that we may want to replicate.

3. Bain Capital will bring new ideas into our industry.

On the surface, Bain Capital’s vision of ADK becoming a “digital first” agency has all the vagueness and banality that we are accustomed to seeing from others. We should give the people at Bain the benefit of the doubt though.

Bain might be able to make some interesting moves like: forming new kinds of partnerships with various content providers; making unconventional investments in emerging data-analytics companies or industry relevant outsourcers; incentivising ADK’s staff by evaluating them solely on performance rather than seniority, and recruiting fresh talent at every level (not just in management), including top-tier foreigners. Certainly, Bain Capital already sees the value of ADK’s focus and investments in content creation and production.

4. Bain Capital could redefine how international agency networks operate and compete.

ADK may be unhappy that its partnership with WPP made it more challenging to grow outside of Japan. However, the current weakness of its international network will likely work to ADK’s long-term advantage. The company has the ability to start afresh with how it engages the world outside of Japan. Other agency groups have acquired numerous undiversified assets. They are, for better or worse, committed to businesses and business models where margins promise to be squeezed and squeezed again over time. 

Bain Capital may be willing to take greater and more imaginative risks to help ADK create higher value to clients and higher margins than its competitors.

If Bain Capital is able to succeed, or even partially succeed, all of Agencyland is in for a massive shakeup. Other private-equity investors and the like will seek to replicate its success. If Bain fails—and it might—others will learn from its mistakes and try again.

Make no mistake. Public holding companies like MDC, IPG and Omnicom are all takeover targets. As for who might succeed Sir Martin Sorrell as the leader of WPP, we should add Bain Capital’s David Gross-Loh, or someone like him, to the potentials list.

If we as an industry do not move to transform ourselves, outsiders will do it for us. Even if we do move quickly, it may already be too late.

Barry Lustig is managing partner of Cormorant Group, a Tokyo-based business and HR strategy consultancy.


Campaign Japan

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