Ad infinitum

28 July 2013 By Quentin Webb

Two of the world’s top ad men are making a $35 billion bet: size matters in the digital age. Maurice Levy of France’s Publicis and his U.S. counterpart at Omnicom, John Wren, have agreed to create a transatlantic giant that will overtake WPP as the world’s biggest advertising company. Cost savings look modest. And clients could defect. But the combined group should be better able to stand up to new-media giants.

This 50-50 “merger of equals” is the logical conclusion of many years of M&A in marketing and communications. That has created giant holding companies which each own dozens of semi-autonomous agencies. The new Publicis Omnicom will include, among others, outfits such as BBDO, Saatchi & Saatchi, Razorfish, and Fleishman-Hillard.

That setup, particular to the ad industry, means some of the usual risks of a mega-merger should not apply. Copywriters and salesmen should not leave in droves, because individual units will continue. There is a bigger risk that rivals such as WPP and Havas try to poach customers: some companies will surely be upset that their arch-rivals are represented by sister agencies. But the outflow should not be disastrous. The advertising giants have years of practice managing those potential conflicts of interest.

Conversely, this type of structure also means the deal does not promise the huge financial benefits that come from eliminating overlapping businesses. There will be some back-office efficiencies. But promised cost savings of $500 million a year equate to just 2.2 percent of last year’s combined revenue.

So the deal can best be understood as a response to the digital revolution. Added scale makes it easier to negotiate with behemoths such as Facebook on a global advertising deal for a multinational client, say.

Customers can also be sold more products: the duo round out each other’s weak spots in growing areas such as customer relationship management and e-commerce. Advertising groups must also guard against the risk that Google or another upstart moves onto their patch. They must invest in data-gathering and technology. That is more easily done with a bigger revenue base — although of course size here isn’t the only thing that matters.

 

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