Tokyo: Japan’s largest advertising firm, Dentsu Inc, aims for annual sales growth of 10% from its existing American and European operations in the next five years and is interested in acquiring companies in Britain, the CEO of the firm’s US operations said.
Dentsu, the world’s fifth-biggest advertising firm, earns less than 9% of its revenue outside Japan, and it is prioritising overseas expansion as a recession and declining population crimp the domestic advertising market.
Dentsu last year acquired McGarry Bowen, one of the largest independent advertising firms in New York, following its acquisition of Attik in San Francisco in 2007.
The company is now looking to boost its digital advertising business in the United States and Europe, while bolstering its UK operations through acquisitions, said Tim Andree, president and chief executive of Dentsu Holdings USA who also oversees Dentsu’s European business.
“Investing in creative agencies in the United States is finished and I am happy with where we are, but we have to grow both our digital capability as well as our traditional media capability in Europe and America," Andree told the agency in an interview.
“Primarily in the UK right now, I would suspect that one of our potential strategies will be to acquire companies so that we can get some scale to our operations quickly," said Andree, who last year became the first non-Japanese executive officer in Dentsu’s 108-year history.
Andree said Dentsu is targeting annual sales growth of 10% in its North and South American as well as European operations in the next five years, purely via organic growth.
“In the UK, I think we’ll grow significantly faster than that," said Andree, a 6-foot-11 (211 cm) former professional basketball player who was drafted by the Chicago Bulls and played in Europe and Japan.
Andree declined to comment on whether Dentsu is interested in the Razorfish online advertising agency that Microsoft Corp has reportedly put up for sale.
For years Dentsu has been trying to raise its global presence by forming alliances with other firms, and it holds a 15% stake in France’s Publicis.
But the Tokyo-based firm struggled to win global clients amid stiff competition with bigger rivals such as Omnicom Group of the United States and Britain’s WPP Group.
In the three years since Andree became the head of US operations, however, Dentsu America’s revenues from Japanese clients have fallen to less than 50% of the company’s total from 85%, meaning the company is becoming more dependent on local clients.
Analysts have said that overseas growth is key for Dentsu’s future as the company already dominates the Japanese market with more than a quarter share.
Dentsu in May reported a fourth-quarter loss and forecast a weaker recovery than expected this year as client companies tighten their marketing budgets.
Masato Araki, an analyst from Mitsubishi UFJ Securities, said Dentsu needs overseas M&A to achieve its business targets including an operating profit of ¥70 billion in the year to March 2014, up 62% from the year ended in March.
“I’m very curious to know how they plan to achieve the 10% growth (in US and Europe) without M&A," said Araki.
“The overseas M&A situation is tough because all the major firms are looking to buy prominent agencies. But if Dentsu succeeds in buying Razorfish, for example, then that would be a big plus," he said.
Dentsu is scheduled to announce details of its new medium-term business plan on 29 July.
Shares of Dentsu closed up 2.2% at ¥1,914, outperforming a 1.6% rise in the benchmark Nikkei average.
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