The acquisition of IPG by Omnicom is a boon for the PE

THE successful merger between Omnicom Group and Interpublic Group on Monday offers valuable clues about the future of trading in the ecosystem and indicates which parts of the combined Omnicom business might consider spinning off, according to interviews with five corporate strategy and financial advisors.

The acquisition reflects the growing value of data and digital-driven agencies, the opportunity presented by new technologies like generative artificial intelligence, and the increasingly important role that private equity could play in closing transactions in this area.

“This marks a major shift in the future of an advertising agency,” said Robert Berstein, managing director at mergers and acquisitions consultancy JEGI Clarity. “We are also losing a large holding company as a buyer, which means more mid-market deals will need to be done that are creative and have private equity backing.”

PR and market research companies are likely candidates for the sales block

The items most likely to be separated fall into two categories, according to Progress Ventures founder Sam Thompson.

The first category is the most obvious: any overlapping or duplicative service immediately becomes a sales candidate.

Duplicating back-office functions, media planning and buying services could lead to spillover effects in efforts to recognize cost synergies, according to WY Partners founder and managing director William Ritchie. Likewise, divisions such as public relations and market research would be plausible candidates for sale, according to Berstein.

The second category of potential sales includes promising sectors that are nevertheless not essential to the future of the combined company, according to Thompson.

Potential candidates include strategic communications and specialized, low-margin or highly regionalized units, Ritchie said.

The five analysts highlighted Sale of Huge by IPG to AEA Investors last week as an example of the type of properties the company would like to get rid of.

“The sale of Huge, a digital-first agency, highlights how specialized assets with strong digital capabilities can generate significant interest from private equity buyers,” said Tony Gonzalez, co-founder and Managing Director of Mundial Media.

With one less buyer, private equity firms can play a bigger role

The most immediate impact of the acquisition is that it removes a strategic buyer from the ecosystem, meaning private equity firms will likely have a larger role to play in future negotiations, according to Berstein.

Private equity has been gradually expanding its presence in space in recent years. Aside from the recent sale of Huge, companies like ECI, KKR and Keystone Capital have all acquired or made significant investments in digital agencies since May.

According to Thompson, this is partly due to the attractive financial engineering of the agency sector. Small and medium-sized businesses can generate healthy cash flow without having to scale aggressively.

More importantly, private equity buyers are increasingly seeing opportunities in these companies because of new technologies that can allow agencies to do more work with fewer employees and at a faster pace. In particular, GenAI is likely to become an integral part of the creative process, while machine learning is already enabling media buyers to optimize their plans with fewer resources.

Indeed, a key element of the Omnicom buyout is the opportunity it offers the resulting company to serve all of its customers but with fewer staff, according to Erica Gruene, director of Quantum Media and professor at the University of New York. York.

“It’s like the old maxim: The only thing an advertising agency owns is getting in the elevator and going down every night,” Gruene said. “And these days there’s no need to have that many people in the elevator.”

This type of technological improvement can generate higher margins, bringing in more cash in the short term and enabling the kind of value creation that private equity firms hope will result in lucrative exits several years from now.

“You could take something non-essential from this IPG merger, get it cheap, digitize it, transform it and sell it for three to five times as much,” Thompson said.

To remain competitive, other holding companies may also be forced to more urgently consider mergers and acquisitions themselves, according to Ritchie.

“Overall, acquisition will likely only add fuel to the fire when it comes to M&A in 2025,” Ritchie said.