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Publicis and Omnicom merger: a towering edifice of ego

Publicis and Omnicom merger: a towering edifice of ego

Dominic Mills new
As Omnicom and Publicis announce a merger that will create the world’s largest marketing and advertising powerhouse, Dominic Mills asks why neither party seems to be able to provide a decent rationale for such a move – and concludes other forces are at work…

So…the big four become the Really Big One (Publicis/Omnicom) and the still-big-but-not-quite-so-big-two.

And what a surprise. If you were looking at the odds of further consolidation among the big marketing services holding companies, few people would have guessed that it would be Publicis and Omnicom.

The short odds would have been on Interpublic selling out to one of the others, with the likelihood of Havas (sixth, after Dentsu, by a longish way) then being mopped up a jilted suitor.

So why these two, and why now? Well, it’s pretty hard to see any meaningful logic (see below) to the act or the timing – apart from ego that is.

For Publicis boss Maurice Levy, the deal looks like the crowning achievement of his career. For some time the drums have been beating about his impending retirement, so what better way to bow out than by creating the world’s biggest marketing services supplier, nicking the title from under the nose of his arch-rival, Sir Martin Sorrell.

Omnicom meanwhile, under CEO John Wren, has lost some of its lustre. It can no longer claim unequivocally to be the world’s most creative holding company, and has lost ground in the two key areas: emerging markets, especially China, and digital – to both Publicis and WPP – where it has been either off the pace or unwilling to splash the cash.

Thus, even at the risk of subsuming Omnicom’s identity, it gets Wren back in the game as a player.
Do not underestimate either the way this deal allows both Levy and Wren to put one over their most feared rival, Sir Martin Sorrell.

Like Sir Alex Ferguson, Sorrell has an uncanny ability to get under his opponents’ skins. Over the years, his constant sniping comments – not to mention his audacious empire-building – have narked his rivals.

If you want to put one over the arch deal-maker, why not trump him with the ultimate deal, all the sweeter too for keeping it under wraps during the six months of negotiation.

So why is this deal about ego? Two reasons: one, when neither party seems to be able to provide a decent rationale, you have to conclude other forces are at work.

Ego, part one: the stated benefits of the deal, according to Levy, are that it “brings together the most comprehensive offering of digital and analog services.” Pretty feeble, eh?

Wren doesn’t offer much more, adding that the merged company is “reshaping the industry by setting a new standard for supporting clients with integrated messaging across marketing disciplines and geographies.” Boring accountant speak.

Seriously, you would hope that two leaders in the communications industry could come up with something that shows a little vision, if nothing else.

Therefore, you conclude, the real logic is the pursuit of size for its own sake.

Ego, part two. In this happy new world, both Wren and Levy get to run the giant train set as joint CEOs. Then, after 30 months, Levy becomes chairman and Wren CEO…meaning they’re still sharing the train set. Cosy, isn’t it?

By this point Levy will be 73 and Wren 63, which makes them the equivalent of a pair of corporate bed-blockers.

This may be a bit unfair. But only a bit. The deal does offer some complementary reinforcement of weaknesses. Publicis is strong in digital and emerging markets, where Omnicom is weak. Omnicom is stronger in the US than Publicis. (AdAge has a useful chart here).

But that’s about it. Neither is a debilitating problem, and both holding companies could have carried on quite happily as they were for many years to come.

So what will the clients think? It’s hard to imagine they have been saying to Levy or Wren: “Look mate, you know what your problem is? You’re just not big enough. You should bulk up or we’ll take our business elsewhere.”

Client reaction, however, is likely to be fairly passive because, when all is said and done, the bulking up is at holding company level. The individual networks with which they deal – whether it be BBDO, OMD, PHD, Starcom, DigitasLBi or Leo Burnett – are the same as they were, staffed by the same (for now) individuals.

The main difference is that the networks will now have to deal with a more complex, more political, more shifting corporate bureaucracy at holding company level.

Nor do I think they will be much affected by conflicts of interest. The holding companies have long laid this bogey to rest by running multiple networks, and this will continue until such time as (or if) any two networks are merged.

And of course, as they do now, they will compete between themselves, which explains why both Levy and Wren are sanguine the deal will not be derailed on the grounds of anti-competitiveness.

Media buying may be another matter, and this may be where the media owners will be agitated. However, there is a point at which sheer size sometimes works against you. Whereas a media owner might be happy to give a medium-sized media buyer a good deal, they might baulk at giving one to a huge buyer. Nor does using volume like a bully-boy always work in your favour (as Group M found out this year with C4).

When it comes to assembling best-of-breed holding company interdisciplinary teams to offer a one-stop solution to a client (e.g. WPP’s Team Ford), Publicis and Omnicom have lagged behind. I don’t think the deal will change this. These things are difficult enough to pull off within one entity, let alone within two, where the two moreover are effectively strangers bound only by some vague link at a holding company level.

Many clients find the idea confusing, don’t believe they are getting the best individual units, and hate the idea of being shoe-horned into a deal that suits the agency more than them.

If there is one area where this deal might have some advantages, it’s in technology investment. As technology increasingly becomes a competitive differentiator, the ability to invest or spend more might work to Publicis/Omnicom’s favour.

But this is also where the joint CEO structure might work against the new entity. If Wren wants to invest in one thing, and Levy in another, that could be a recipe for corporate paralysis or infighting.

So where does leave everyone else? The ‘urge to merge’ will accelerate, if only because ego is never far away and there’s nothing like a deal to spark copy-cat activity. That means possible deals between any combination of Interpublic, Havas and (possibly Dentsu), with WPP no doubt holding the whip hand.

As prized assets become rarer in the market, it also means the value of blue-chip independents like Wieden and Kennedy, Mother and M&C Saatchi could soar.

So while it may have looked as though the agency landscape had reached a sort of stasis, all bets are now off. But never discount the impact of ego.

A really good assessment from Dominic (as usual!).

The shareholders will undoubtedly see balancing out individual geographic and capability strengths and weakness as a plus. I suspect they will however be as or more interested in the benefits of potential synergies that well run companies inevitably run out of.

The irony is that whilst digital communications may arguably offer the client efficiency in reaching audiences, the sheer complexity requires the agency groups to invest more in systems and technology, building new infrastructure and operating systems for the whole business to fully understand, leverage and manage efficiently on behalf of clients.

Making these investments and doing this once not twice as a consequence of the merger could add up particularly if they have a very big idea about what an agency of the future really needs to look like to make money in the real time world. We tend rightly to look at creativity and talent as the drivers of our industry which of course they are.

Underneath this however are businesses on an expensive journey to being transformed into sophisticated systems and data management platforms that tie multiple activities together. Perhaps some of the financial rationale for the tie up lies underneath this stone?

Jerry Hill
CEO
RAJAR

Great job Dominic! Think you have it nailed. I would also add, don’t forget the importance on the French side of the succession issue that was never resolved…

Interestingly the year John Wren will take over as sole CEO of Publicis Omnicom will be 90 years since the founder created Publicis. He will be only the third CEO in 90 years…

Richard Pinder
CEO
The House Worldwide

Good summary from Dominic and interesting point by Jerry on technological infrastructure. Trouble is ‘others’ are already there with that. Don’t suppose Google and the rest will lose sleep over this latest development in ‘The World of Don Draper’.

Vic Davies
Course Leader & Senior Lecturer
Bucks New University

The clients will pay for the merger one way or the other.

Emmanuel Upputuru
Founder & Chief Innovation Officer
ITSA, India

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