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Pooling Resources.

Omnicom and Publicis Merge to Create Marketing Mammoth

Two of the world’s five largest advertising agencies join forces to take the Internet by storm.

July 29, 2013

On Sunday, July 28, Paris- based Publicis and New-York based Omnicom announced an unexpected merge.

The new company, Publicis Omnicom Group, will employ about 130,000. With $23B in annual sales and an overall worth of $35.1B, it’s now the largest advertising agency in the world—almost twice the size of its closest rival, WPP. It will continue to trade publicly under Omnicom’s symbol (OMC) on the NYSE and Euronext, and shareholders from each company will hold about 50% of the company’s equity.

Although consolidation has remained the norm in the ad industry for the past decade, this is different. First, it’s much larger in sheer size and power. Second, the combined company claims to respect the individual firms as equals as opposed to a straightforward acquisition.

The goal of the merger, according to press releases, is to target a daunting task—understanding rapid changes in consumer behavior, and taking the Internet as its stomping ground.

What Does this Mean?

“A New Company for a New World”: If it wasn’t obvious before that the Internet and mobile represent the future of marketing, it should be obvious after the merger. $519B will be spent on advertising this year. Nielsen reports TV advertising has grown 3.5% this year; Internet has risen 26.3%, and mobile is expected to rise a whopping 83%. Traditional ad agencies need to change the way they approach business if they wish to survive, as no one (yet) seems to have discovered the secret sauce to mobile advertising.

Time to Take Down Opposition: If the Internet is the enemy, then Google and Facebook are its generals. And these are the companies POG banded together to combat. If their goals are met, they’ll change the status quo, using Big Data, real-time statistics and automated buying of ad space. Challenging these wealthy, established companies won’t be easy, but POG hopes to find strength in numbers.

Automated Buying of Ad Space: This market is growing rapidly (eMarketer reports US advertisers alone will spend $3.4B this year on real-time ads.) Both CEOs see automated buying as the future of advertising. Google and Facebook have disproportionate strongholds, as Google sells search ads and runs an automated market, and Facebook uses its data and audience to cater to them.

Potential Win-Win for Big-Name Customers: Publicis and Omnicom represent some of the largest brands in the world.

Publicis’s clients include:

  • Bank of America
  • Coca-Cola Co
  • BMW AD
  • Proctor & Gamble Co
  • McDonald’s Corp
  • Agencies in emerging markets

Omnicom’s list is also impressive:

  • PepsiCo Inc
  • Nissan Motor Co
  • Proctor & Gamble Co
  • McDonald’s Corp
  • Companies in over 100 countries 

Both companies own notable divisions, including Publicis’s:

  • Leo Burnett Worldwide
  • Saatchi & Saatchi
  • Razorfish
  • Ditigas
  • Starcom/ Mediavest

And Omnicom’s:

  • BBDO
  • DDB
  • TBWA \ Worldwide
  • Bernard Hodes
  • Communispace

Merging means they’ll be able to negotiate better rates. Added resources, knowledge and contacts can allow for more exposure. Finally, with a new focus on the Internet, POG’s customers can expect better representation in this frontier.

While some conflicts of interest exist (ex: Pepsi v Coca-Cola, and AT&T, Sprint, Verizon and T-Mobile), CEOs have yet to express major concern. However, some clients won’t work with marketers who serve rivals, especially under the same agency.

Regulatory Actions: Both CEOs don’t expect issues in acquiring market approvals. But, antitrust sentiments (POG will control about 20% of global media spending, and around 40% in the US), conflict of interest and success of the merge itself are major concerns. In fact, this deal faces scrutiny in 41 countries.

Opportunity for Smaller Companies: While POG has gained a major advantage in terms of resources, smaller companies are often more agile and innovative. Technology companies, smaller ad agencies and startups have a chance to get a piece of the pie.

Trouble in Paradise?

The implications are promising for POG. However, this deal doesn’t come without major concerns.

Some analysts believe this is a win-win—not just for POG, but for its rivals. Client conflicts, layoffs and other concerns could cause customers to abandon relationships, giving competition a chance to pick up the slack. Per analysts at Barclays:
“In our view, the combined company is likely to lose some clients as a result of the merger. If anything, the merger provides an opportunity for advertisers to review their agencies in order to get a better deal, and we wouldn’t expect the new Publicis Omnicom Group to win all the reviews.”

Douglas McIntyre wrote, “Publicis Groupe and Omnicom Merge: Ego Prevails,” in which he highlights several important considerations:

  • Concern over leadership structure, in which the two CEOs will serve as co-CEOs.
  • Each company is composed of many smaller companies, some of which compete against each other. How can they become cohesive?
  • Customer concerns over layoffs and consolidations.
  • Finally, McIntrye believes this deal could be out of sheer greed, saying, “The heart of the deal may be ego. WPP has been at the top of the ad food chain for a long time, perhaps in the viewpoint of Wren that time has been too long. He now has the chance to be top dog.”

Arwa Mahdawi’s “Has the Publicis-Omnicom merger created a marketing monster?” highlights that this is not an industry-changing merge—just a very large one. And bigger may not be better. In fact, it may be the opposite:
“Leanness and agility have become the mantras of the marketing world, but rather than truly acting like startups, big agencies are simply acquiring them. Indeed, more consolidation in the industry seems likely following the Publicis/Omnicom deal.”

Specifically, she tackles the question of whether innovation is possible, saying:
“If traditional advertising agencies want to compete with the likes of Google, they will have to innovate, and innovation isn't usually a matter of old, white men making deals on Parisian rooftops...”

Finally, Forrester Research’s David Cooperstein highlights the importance of IT in digital marketing. Advertising agencies are scrambling to beef up capabilities as marketing and technology continue to intersect, but it doesn’t mean they understand what’s going on. If POG wants to survive, they need to not only focus on marketing—but on the data and technical systems behind it. The challenge, according to Cooperstein, is this:
"The traditional IT guys have to prove that they can move at the pace of marketing, and the marketing folks need to prove that they have the technical depth to be able to operate like an IT services company."

If traditional companies want to keep up, something needs to change. This merge represents a huge shift in the advertising/ marketing landscape, and may give the Internet goliaths a run for their money. However, it’s not without serious concerns and ramifications. Only time will tell whether this new company is “too big to fail.”

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