Holding Companies Put Long-Term Plans on Ice Amid Economic Confusion

Despite a full pitch pipeline, the amount of money up for grabs is 21% lower globally than a year ago

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As 2023 begins, holding companies are keeping their plans for the year close to the vest, especially ahead of a murky economic period.

“It’s either they’re scared to call it because they really don’t know, or they’re scared to call it because they do know and they don’t want to tell you,” S4 Capital founder and executive chairman Martin Sorrell told Adweek.

All the holding company leaders that spoke with Adweek said they were proceeding cautiously, with no immediate plans for sweeping cuts or official hiring freezes—at least, not at the holding company level.

“While finalizing our budget for 2023, we remained cautiously optimistic. There is, of course, a lot of volatility and uncertainty all over the world, but despite the geopolitical situation and inflation in Europe and in the U.S., we are not seeing any major slowdowns for the time being,” said Yannick Bolloré, chairman and CEO of Havas Group.

The holding companies are now in an apparent waiting period. Leaders are treading choppy waters, entertaining a nervous optimism going into 2023 as they watch the economy. WPP investment arm GroupM’s year-end ad spend forecast projected 2022 global ad spend increased by 6.5%, compared to 2021’s 22.5% growth. GroupM expects ad spend will decelerate again in 2023, an encroaching squeeze that introduces uncertainty. Sustaining growth will require holding companies to find new ways to drive revenue and compete for more pitches that are, on average, less valuable than last year.

Executives at Havas, IPG, Publicis Groupe, S4 Capital, Stagwell and WPP responded to Adweek’s request for comment on this story. Dentsu CEO Hiroshi Igarashi and Omnicom CEO John Wren declined to participate.

Inflation squeezes out better pay

Troublingly, leaders have no foolproof recession playbook they can draw from. That’s because holding companies play drastically different roles today than they did during the 2008 recession, particularly due to social media.

“In 2008, you were talking about long-term AORs and more mono-campaigns where someone might make 10 or 12 assets in a year. Now, they’re making 10,000 or 12,000 assets in a year,” said Greg Paull, co-founder and principal at R3.

A recent combination of high employment and burgeoning wages is known to exacerbate, not alleviate, inflation. And holding companies must now pay their many employees more in order to retain them in a higher-cost world, leading to growing overhead costs.

This is reflected in quarterly results, such as IPG’s, which noted salaries for full-time employees increased as a percentage of revenue to 67.4% in the third quarter, compared to 66.8% during the same period last year.

“There’s been more volatility in the labor market as a result of the pandemic. We’ve been clear that we’ve seen modest inflationary pressure on our salary costs,” said Philippe Krakowsky, CEO of IPG. 

More business, less money

Taking more work is an obvious solution to the problem, so long as agencies can hire and pay staff to service new accounts. 

New business is up 18% globally compared to last year, according to R3 data, which evaluated pitches active between January and October 2022. That checks out for WPP, IPG, Havas, Publicis, Stagwell and S4 Capital. Stagwell’s new business opportunities recently hit a record high, according to chairman and CEO Mark Penn.

“I see us in the part of the consumer economy that the Fed is trying to slow down, and the Fed has not yet been successful at doing that. So it doesn’t surprise me that new business pitches are pretty much at a record at the moment,” Penn said.

Despite a full pitch pipeline, however, the amount of money up for grabs is 21% lower globally than it was a year ago, according to the R3 data. The situation is worse in the U.S., where pitch volume was flat year over year, while collective pitch value fell 38%.

Ultimately, holding companies are competing for a surge of accounts that add up to less money, which could lead to servicing specific lines of business or taking on smaller projects instead of managing all their clients’ needs as agencies of record.

“A lot of holding groups have now pivoted to a much more flexible model. It’s difficult to gauge the long-term value of some of these creative relationships, so the creative AOR [business model] has become a challenge,” Paull said.

No hiring freezes—yet

These ample opportunities suggest another reason holding companies haven’t yet made sweeping staff cuts: fear of cutting too many employees to service snowballing accounts. Pandemic layoffs left agencies unprepared to tackle a 2021 new business surge, and more work necessitates maintaining full houses.

Dentsu, Havas, IPG, Publicis, S4 Capital, Stagwell, Omnicom and WPP do not have official hiring freezes in place. But the majority of those companies will hire as few employees as possible.

“When you are overseeing a business that has a very disparate set of capabilities and assets across the portfolio and a business that is global, it’s not the case that you can say there is a [hiring] freeze across the organization,” Krakowsky said.

To that point, Sorrell kept S4’s head count at about 9,000 since “over-hiring” at the beginning of 2022, he said, with plans to add 500 more employees this year.

Agency employees aren’t guaranteed job security, either. It’s likely that holding companies are making small, targeted staff cuts at the management levels, said Brian Dolan, CEO and founder of marketing staff augmentation company WorkReduce. They are redistributing budgets, either hiring more mid-senior level individual contributors or investing in freelance talent, he added.

Nontraditional revenue streams

Despite leaders’ lukewarm attitudes, all the holding companies grew organic revenue in Q3, except Dentsu, which fell 4.7%. Stagwell was up 11.3%; Publicis grew 10.3%; Omnicom jumped 7.5%; IPG was up 5.6%; WPP increased 3.8%; and Havas grew 3.2%.

“It’s interesting that in the first nine months of the year, WPP, and indeed the average of the holding companies, has grown faster than the aggregate of Google, Meta, Snap and Twitter,” said Mark Read, WPP’s CEO. “I think that comes down to the range and breadth of our services that go beyond advertising.”

These other services are mostly business transformation services, data licensing and SaaS, which more holding companies are deploying amid declines. Technology and data sales are a boon when service costs slump. Publicis, IPG and Dentsu have the added advantage of leveraging their Epsilon, Acxiom and Merkle assets, respectively, to glean data licensing revenue.

Publicis’ Epsilon and Sapient investments “put us at the heart of our clients’ transformation and diversified our revenue mix, enabling us to outperform the market in the past years,” CEO Arthur Sadoun said.

S4 Capital, which did not make significant staff cuts during the pandemic, doubled down on what Sorrell called “alternative revenue sources,” such as robotics, online experiential (or Web3) and animation, and said he’ll employ this strategy again if necessary.

While their 2023 plans may still be up in the air, one thing seems certain for holding companies this year: Transformation is on the way. “Human nature being what it is,” said Sorrell, “people tend to embrace change when times are difficult, not when they’re easy.”

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This story first appeared in the Jan. 9, 2022, issue of Adweek magazine. Click here to subscribe.