Nothing is essentially new, neither under the sun nor in the virtual world of digital marketing and social networking. The insight is not new either but — in the context of examining a digital acquisition in Lebanon — notable for having been voiced in a recent iteration by a key brain in the marketing communications empire of WPP, the world’s top-grossing conglomerate in the realm. “Our industry seems to move in cycles, with the same topics resurrected and rebooted every few years. In fact, one could argue that there is really nothing new, just old ideas and issues recharged with new technology, new names and new passion,” wrote Norm Johnston, top global strategist and chief digital officer of WPP unit Mindshare in an outlook on digital for 2016.
The context that warrants local attention to this view on digital marketing is the communications industry news of the acquisition of Cleartag, a digital marketing agency based in the Beirut Digital District, by J. Walter Thompson (JWT), a big brand agency in the WPP Group. While the assimilation of Lebanese advertising agencies into any of the four first-tier (WPP, Omnicom, Publicis and Interpublic) and half a dozen second-tier international marketing communications conglomerates is a long-standing practice, the pairing of JWT and Cleartag could be breaking new ground for Lebanese advertising talent from the perspective of the rise of digital in this industry.
The strongest affirmation on the future of Cleartag covers its operational continuity. His company will not be turned into an internal supplier of digital services for JWT in the Middle East and North Africa (MENA), insists Tarek Dajani, Cleartag’s chief executive. “Cleartag is not being acquired to be annexed as part of the digital capability of JWT. To the contrary, JWT might and will probably be continuing its natural buildup, whereas we will find synergies where we find them and we will build on capabilities where we have to, but there will be some orchestration,” he emphasizes.
Dajani will stay on as the company’s CEO with no plans to step away from the enterprise that he founded in 2000 together with three teammates. According to him, the JWT deal was met with hearty enthusiasm by Cleartag employees to the point of the team being “ecstatic” about how he afforded them the opportunity to “make a difference in the world”. While he would not offer an outlook on how many new jobs the digital agency might aim to create at its Beirut head office in 2016 or in terms of other near-term expansion options, Dajani affirms that Cleartag will seek to branch out into additional offices and grow its reach first within the MENA region. He says, “We [have been operating] from Beirut and Dubai, serving a big chunk of the region; we definitely intend to continue doing so and hopefully have presence beyond Beirut and Dubai, to serve our clients locally. The idea is that there is no limit [to where we can grow internationally] but that there is plenty to do [within the region].”
Roy Haddad, chairman of JWT in MENA, is equally adamant that Cleartag will not be assimilated into the larger brand agency. The value which a company like Cleartag adds to the group resides in the areas of creative technology and analysis of customer interactions for delivering new solutions to clients, he explains. “Today a solution is not only a creative solution but it is more an end-to-end solution for how you engage the customer, build loyalty with the customer and enhance his experiences. This is where the forte of the digital comes in. It is a complementary offer; they are not either-or kind of offers,” Haddad tells Executive in an interview organized jointly with Dajani.
Even if the relationship was to see diverging opinions on the ecosystem and creative differences, this would be integral to the deal, Dajani chimes in. “If I give you another spin on the rationale it is simply because the beauty of the step is that we will be able to attack a market from so many different perspectives and facets. Unlike trends where agencies build capabilities in-house or acquire them through annexing a department, a key part of this partnership is an understanding that we all have a role to play and the decision is that the partnership is creating complementarity, scale, speed and agility,” he says.
Rise of the digital sophists
If what Haddad and Dajani say sounds like marketing speak, one can safely assume that it comes naturally to them. The art of producing a rationale for a transaction and narrating it convincingly is what the marketing communications business has been about since the dawn of argumentation. Aristotle, presumably influenced by Plato in his rejection of the trade of sophists, wrote disparagingly that “the art of the sophist is the semblance of wisdom without the reality, and the sophist is one who makes money from an apparent but unreal wisdom.”
This involves singing the praises of win-win scenarios for sellers and buyers as much as intoning chants of business culture preservation, employee satisfaction and new job creations, whether such statements are true or uttered because they sound good. But sophistry, by all historic evidence, is part of what people want in their communications. It thus cannot surprise that Lebanese marketing communications talents do not want to be left out as today’s global academies of sophistry, the worldwide marketing communications conglomerates, are taking their trade increasingly into the digital realm where they can sell their skills dearly as creators of virtual dialogues with the consumer.
As a matter of fact, the global popular hunger to be imbued with marketing narratives seems to be so insatiable that current predictions describe digital as the future cash cow of communications. A recent paper by the Boston Consulting Group cites industry predictions that global spending on digital advertising will reach $178 billion in 2016, or almost 30 percent of total ad spending. Skill gaps in the digital realm are therefore huge concerns for chief marketing officers, BCG says, and advises that “Marketing organizations need to evaluate their current capabilities and build those needed for the next generation of marketing. After taking stock of their current organization structure, they need to design their structure for increased efficiency and effectiveness.”
A gap in digital capacity between other markets and the MENA region also peeks out from behind the numbers for WPP acquisitions in the digital realm and from the geographic presences of Mirum, the WPP holding for digital agencies that Cleartag will, according to Haddad, be a part of. Mirum, with its head office in Hong Kong, says on its website that it has presence in 20 countries and 46 offices. Not only does neither count yet include Lebanon and Beirut at time of checking in late December but, more tellingly, the only Middle East presence of a Mirum company until the end of 2015 was the Dubai office of UK-based HeathWallace, a digital specialist which WPP acquired in 2008 and which expanded into the United Arab Emirates in 2013.
In the overall picture of its investments into companies in emerging economies, WPP, according to its financial news releases, seems particularly hungry for digital market share in places such as China, India, Brazil and South Africa. Combined with acquisitions of digital and data capabilities in mature markets, WPP creates an impression of overall digital expansionism in which the Cleartag story looks like but one, and not very large, stone in the group’s communications and marketing mosaic.
Secrecy on cash valuations
This analysis of the rather humble position of Arab markets and Lebanese digital providers in relation to trends in the global advertising industry does not make the Cleartag transaction less interesting, however, and especially does not subtract anything from the partnership’s role as an example that other digital agencies in Lebanon might seek to follow.
In this regard, the rationale and the reward of an entrepreneurial company’s sale are two issues of primary interest to other members of an entrepreneurship ecosystem. For Dajani and Haddad, answers come easy in response to the question of the rationale for going with a strategic partner instead of a financial investor from the private equity (PE) or venture capital (VC) side. Dajani concedes that VC funding in the current Lebanese scenario is a valid formula for injecting capital into startups but says that Cleartag is a profitable business that was not in need of VCs. “We did not need capital. What we want is value added and synergy, and the big wave to ride. Cleartag was growing and we will grow more but I’d like to see Cleartag grow globally. [To do that], these are the kinds of partnerships or affiliations you want,” he explains.
JWT and its parent WPP don’t need to shy away from comparison with any PE firm when it comes to introducing new efficiencies to an acquired company, Haddad adds. He says, “The VCs don’t have the appreciation of how important it is to attract talent, grow talent and retain talent. WPP over its history has refined the art of creating financial models to the max and from a financial perspective, the added value contribution that we can have on a business like Cleartag is endless. Plus, sharing of back office, of our treasury, [and] giving them access to all that they require financially to be able to only focus on their business is different to a VC where they will be hampered by the financial demand. [With us] all the anxieties about finance are the role of the holding company to assume whereas the [Cleartag] team basically just focuses on how to add value and add revenue.”
How much revenue Cleartag might add to the group and how much this potential was worth to JWT in cash compensation under the acquisition agreement is something that Haddad is not willing to discuss. He refuses to provide any number related to the transaction even upon the most emphatic plea for more transparency and only affirms that the transaction was based on a “fair price”. Elaborating a bit further, Haddad adds that the valuation of Cleartag was not discounted because it is based in the Middle East and that the transaction happened within parameters for which WPP has refined a model of multiples. “These multiples have to have a bearing on the way the business has been growing, the kind of clients it holds [and] the retention [span] of these clients. All these affect the multiple and the multiples are not unlike any other multiples around the world. Let’s be very clear. It is not a discounted multiple; it is a fair multiple based on a global standard. We are not vultures; on the contrary, we like to help people create wealth and that is basically why the deal happened,” he emphasizes.
A hint to numbers on which a multiple might be based in the case of Cleartag comes from the WPP financial news release on the transaction. While a parallel JWT release provided only soft information on the deal, WPP said that at year-end 2014 Cleartag’s unaudited revenues for the year were $3.6 million with gross assets of approximately $1.5 million.
Whatever its size, a good portion of the reward has to have benefited Dajani, who is not only co-founder and CEO of Cleartag but also chairman/shareholder of DNY Ventures which last month still was shown in the Lebanese commercial registry as the majority shareholder of Cleartag Holding, which is the majority shareholder in Cleartag sal. He does not want to discuss the size of his shareholding in Cleartag after entering the partnership with JWT and like Haddad, refuses to say anything about the value of the transaction. But the deal unmistakably has been personally motivating for him. “I will still be the entrepreneur that I am and I will still be taking Cleartag in the direction that I am taking it but I do feel that we have a kind of synergy and chemistry that will have an impact beyond the benefits for the clients and for us, also setting a new model of how you could take locally grown talent pools and create global impact. I think one should not shy away from such trajectories,” he enthuses.
Given that valuation multiples these days appear to range in single digit earnings, the Cleartag acquisition should not cause other digital entrepreneurs in Lebanon’s tech ecosystem to break out in dreams of billion-dollar fortunes quite yet. But this might actually be helpful since Haddad claims that local companies need to become more realistic and more pragmatic, managing their expectations when it comes to negotiating deals with strategic investors.
Despite cash rewards that may be lower than in a so-called perfect exit in London or New York, a partnership with a global player can be expected to provide fundamental appeal to young companies in the Lebanese communications industry and perhaps act as a virtual elixir of youth in reinvigorating the role of Lebanese talent in the regional advertising game, where prospects for mobile and online marketing are supported by high mobile penetrations and strong growth rates in Internet usage. According to Internet World Stats, Internet users in the Middle East region (excluding North African countries) number 123.2 million, or 52 percent of the regional population in the 14 countries included in the stats. The regional Internet penetration rate as per November 2015 was six percentage points ahead of the global average and the growth rate in Internet users for the 2000–2015 period, at roughly 3,650 percent in the Middle East, was the world’s second highest after Africa. When considering the mixture of achieved ground and open potentials that these numbers encapsulate, the Middle East appears to be a rather sweet spot for taking digital marketing communications to new profits in the coming years and the Cleartag transaction does herald potential for Lebanese marketing talent and all local adepts of sophism of the new, digitally enabled, type.