Industry insiders predict that Acquisition of Interpublic Group (IPG) by Omnicom Group will likely lead to the consolidation and elimination of legacy creative agency brands.
Omnicom announcement announced Monday, December 9, the acquisition of rival holding company IPG, creating the world’s largest advertising group. The new company will be called Omnicom, and management expects it to reduce costs by $750 million in the first two years after the closure.
Omnicom CEO John Wren told ADWEEK that “anyone managing revenue through IPG or Omnicom… your jobs are more secure this morning than they were last night.”
But industry observers predict the combined company will follow the model of rival holding companies in consolidating agency brands.
“Consolidation is coming,” one consultant and former agency CEO told ADWEEK.
Omnicom owns advertising agencies including BBDO, DDB, TBWA, Goodby Silverstein & Partners, while IPG’s creative agencies include McCann, FCB, Deutsch, The Martin Agency and MullenLowe, among others. Together, the new Omnicom will have six global networks of creative agencies and a handful of regional boutiques.
The consolidation would follow a broader industry trend. Last year, WPP merged Wunderman Thompson and VMLY&R to form VML, and Publicis Groupe leveraged its Power of One proposition to sell itself on pitches for an integrated offering spanning creative, media, data and more.
According to Greg Paull, CEO and director of R3, the combined company operating six global creative brands seems unlikely. “Some consolidation, as has been seen at WPP and elsewhere, would be expected.”
Separate brands and small stores are more likely to be protected
IPG and Omnicom are strong advocates of maintaining distinct agency brands to attract clients and talent, even as the back ends of the holding companies become increasingly consolidated.
But the $750 million in promised savings “is going to create a lot of friction within the merged group,” Paull said.
“As WPP and Publicis have already discovered, it is difficult to consolidate a wide range of creative agencies under a single holding company,” he continued. “Omnicom and Interpublic have already been run very efficiently, so achieving these savings will have to come through internal consolidation.”
The agency’s former CEO said it’s likely Omnicom will “organize itself around real points of difference” and place “more emphasis on capabilities” rather than agency names. The stores that will continue under the new entity will be “those which will have a differentiated point”, he added.
He pointed out that McCann, which is an international network, and The Martin Agency – a “consumer US agency” that attracts US brands like Geico – have distinct brands in the market.
Donna Sharp, managing director of MediaLink and partner at UTA, said IPG agencies often tapped in presentations include Martin, FCB and Deutsch. “Even though IPG has obviously made some changes, they still have a significant number of really competitive creative solutions,” she said.
An agency founder who previously worked at Omnicom believes smaller agencies in both networks could be safer as the company will look to larger networks for cost savings. “I don’t think [small agencies are] where the energy and cost savings come from,” they said.
Consolidation can be a selling point with clients who want access to multiple services from a single provider, the agency founder said: “That’s what clients are asking for. [in many global pitches] …they want the full support of these multinational mega-holdings.”
IPG and Omnicom are already on this path. Earlier this year, Omnicom unveiled Omnicom Advertising Group, a new structure that brings together its creative agencies under a single management team. And IPG sold Deutsch New York and Hill Holliday in January and last week he sold digital agency Huge to private equity firm AEA Partners. R/GA is also for sale.
“There’s probably an opportunity for Omnicom to look at the value of its individual brands and what they command in the marketplace,” Sharp said.
The disadvantages of consolidation
Andrea Kerr Redniss, managing director of MediaLink and partner at UTA, said many clients still want the choice of working with separate creative agencies that can offer different capabilities.
“Brands always want to have a list of creative agencies rather than just one. So there is an advantage to having it. [a holding company] keep multiple creative agencies,” Redniss said.
Conflict between customers could also become a sticking point as IPG and Omnicom consolidate their rosters. “As with any discussion about scale, conflict management will also raise its head,” Paull said.
As these issues arise, Sharp predicts that independent agencies could experience advantages, as they will be even more differentiated and more agile than “very large agencies that keep getting bigger.”
Independents could also benefit from a potential drain of talent and clients as Omnicom and Publicis await regulatory approval for the merger. “If there is going to be a loss of talent within the holding companies, that means there will be incredible talent available in the market,” Sharp said.
Regardless of how and when the consolidation takes place, the former Omnicom executive said now is the time for agencies across both networks to prove their value and distinctiveness.
“This is your chance to prove the value of your operation and also show what a great management team you have,” they said. “Make it something that can’t be consolidated because it’s too successful. I urge people to play offense and not defense right now.
