Envoy’s Genovese deconstructs Leagas Delaney acquisition

Envoy Communications president Geoff Genovese wants to turn his company into a 'new breed' of international advertising agency....

Envoy Communications president Geoff Genovese wants to turn his company into a ‘new breed’ of international advertising agency.

And now, with the $132-million acquisition of U.K.-based creative agency Leagas Delaney, he has the third crucial pillar of his plan finally in place.

Since Envoy went public in 1997, the Toronto-based company has been on something of an acquisition spree.

Last year, Envoy picked up the retail design firm Watt Group, and merged it recently with International Design Group to form Watt-IDG, the company’s design pillar.

Earlier this year, it also acquired Sage Information Consultants and Devlin Applied Design. These will be merged to form a new company, representing Envoy’s international technology pillar.

As for the third pillar of the company, that’s advertising – hence the Nov. 6 purchase of Leagas Delaney, a London-based agency with offices in Hamburg, Paris, Rome and San Francisco, and a client roster that includes the likes of Barclays, CNET.com, Goodyear, Harrod’s and Telecom Italia.

The acquisition will add $165 million to Envoy’s gross margin, and will see its billings nearly double, to $750 million.

Here in Canada, Envoy’s Toronto-based agency Communiqué will become the Canadian office of Leagas Delaney. As such, it will report directly to headquarters in London, and staff will work on worldwide accounts with other Leagas offices.

Genovese says he’s currently looking for top creative and administrative talent to build Leagas Delaney Canada, and is encouraged by the calibre of people applying.

Strategy caught up with Genovese a week after the acquisition. Fresh off a red-eye after a visit to the Leagas offices in San Francisco, he hasn’t eaten a proper dinner in two days. Passing a pool table on the way to his office, he quips, ‘I’m so hungry, I could eat the cueball.’

Q. Beyond the appetite to bring more to the table as the going gets global, what’s motivating conglomeration like this?

A. Clients want an agency that’s best of breed in terms of creative. They want an agency that can lead them through the technology side of the business – and I’m not just talking about the Web, I’m talking about infrastructure. Technology is a part of marketing these days. It’s a way to get closer to your customers, a way to reduce costs, and to collaborate with your corporation around the world to build products faster than you could before. The marketing guy realizes that technology can help him build market share, so he’s looking for a company, agency or business that can not only do great creative and execute it in every medium out there, but also one that can lead from a technology standpoint. [Clients are] also looking for strategic consulting, which agencies used to be a lot better at. And the other thing is international coverage.

Q. Is your model – mixing advertising, technology and design – one that other agencies will follow?

A. I think they’d like to follow it, but I don’t think they really can. The large holding companies like Omnicom or Interpublic are all buying up these assets, but what they’re not doing well is integrating them. Being so big, it’s a huge challenge for them. Our advantage is our size. We’re a lot further ahead than anybody else in terms of the integration and the convergence.

Q. To make all these acquisitions, you went public. Have you found there’s a downside to being a public company?

A. You’re living in a glass house. When you’re a smaller company like Envoy, Cossette, Maxxcom or Mosaic, shareholders want growth. If they wanted dividends, they’d go to Bell or whoever’s dishing out dividends. They’re buying us for growth, so that’s a pressure.

Q. Have you found, then, that this forces you to focus more energy on acquisitions than you would have liked?

A. No, we’ve been pretty good in that we haven’t done that many acquisitions. And two of them this year were really orchestrated by Watt… Envoy is really a service company to our operating companies. My job is to raise capital for Watt, to help them with their strategic vision and help identify possible acquisitions. They end up deciding whether they’re going to acquire a company or not. Leagas Delaney will be exactly the same, and the technology side will also be the same.

Q. What will the agency industry look like in the future?

A. I think it’s going to be a lot different – and I don’t think a lot of people realize why. The [U.S. Securities Exchange Commission] has mandated that all the big consultancies – KPMG, Arthur Andersen and so on – divest themselves of their think tanks. They’re all in the process of spinning them out right now and taking them public. If you’re public, you have to grow. Where will they grow? They’re the strategy side of the business and are advising Fortune 500 companies on where they have to be from a digital standpoint…and where they have to be internationally as a business five years out. They’re going to be looking for execution of killer creative, killer design, killer technology, and [for that] they’re going to want to partner with an organization like Envoy.

Q. Will there even be such a thing as a Canadian agency in the future?

A. I think so. Keep in perspective that Canada’s not a big market, with only about 30 million people. We’re a pretty small country and a tough one to advertise in because we’re so spread out. And it’s competitive.

Q. Will Envoy remain independently Canadian?

A. We’ll end up becoming part of…one of the big, world-leading [think tanks]. That’s what I think.