Omnicom’s acquisition of IPG is a massive piece of news just as the industry slows down for Christmas. But what does it mean? At its most simple, three businesses (WPP, Publicis, Omnicom/IPG) that will look quite similar and compete heavily.
Of the networks, Omnicom and IPG have the most devolution in their operating brands, although Omnicom has been rationalising to some extent. Putting more and more separate branded businesses into big silos is not an option in a deal of this kind. Therefore, we are likely to see significant consolidation of agency brands over the next few years, akin to what WPP has been doing.
Omnicom has only recently returned to M&A – their $835M acquisition of Flywheel was a huge statement of intent – but it will be another two to five years before we see them acquiring again if this deal passes the regulatory hurdles. We can expect the next few years for the new group to be characterised by consolidation and divestment. As a side note, it’s also worth mentioning that Omnicom has traditionally been a really good financial management vehicle for shareholders and this is another example of them continuing to do just that.
The deal will deliver a handful of discipline-specific powerhouses.
1/Bringing together PR powerhouses such as IPG’s Weber Shandwick and Golin with Omnicom’s FleishmanHillard and Ketchum will create one of the world’s strongest strategic comms capabilities.
2/On media and media tech, while complicated, given how devolved the management teams are in both groups, there is a sector-leading operation in the making. The scale and expertise that comes by pooling IPG and Omnicom’s data and tech propositions (Acxiom, Flywheel) will also help the industry to better face up to the tech platforms.
3/On the creative front, IPG has McCann, FCB, Mullen Lowe. Of these, only McCann is a decent scale competitor against Omnicom’s TBWA, DDB or BBDO, which essentially presents four advertising divisions.
The implications for the market more broadly are profound:
Stagwell is one of the few challengers to operate a devolved agency brand model similar to IPG and Omnicom. For Stagwell, the proposed deal is either an opportunity or a threat. For any brand not wanting to work with one of the consolidated super networks, Stagwell can step in. But if clients choose not to behave in this way, Stagwell may well find themselves up for grabs.
Dentsu will have much to consider. The value of the Yen has plummeted which makes them vulnerable to a potential approach from a large private equity firm that recognises the value in their data/media capabilities.
Is Vivendi’s listing of Havas still viable in the face of this Omnicom/IPG news? Might we see it go into private equity hands instead for a number of years?
As Omnicom and IPG consolidate and rationalise their agency brands and businesses there may be an opportunity for challenger agencies such as Dept, Bounteous, Hero Digital (having just acquired Huge from IPG) etc. who are on their second and third runs of PE to acquire a substantial business that is seeking a new home. In recent years, there has been a relative lack of businesses of substance on the market
Accenture may see themselves as vulnerable in the face of a new landscape of three huge networks and may also look to acquire a newly available asset, especially around data and media where it has limited capabilities. For a business like Accenture PLC, with a market cap of $243 billion that would be eminently doable.
This kind of seismic consolidation will make life far more difficult for the smaller groups and independents who will see themselves sized out of a market increasingly dominated by a handful of players with the ability to secure giant procurement deals with global brands. This is particularly relevant in the media world, which has become ever more a volume play and smaller players will need to specialise and go niche – influencer agencies will be well placed for this opportunity.
A new generation of startups – in any merger, there’ll be people who choose not to be part of it and to set up on their own. Equally there will be people on the wrong side of “cost synergies”, who will be forced to do their own thing.
Matt Lacey is a partner at Waypoint Partners.
