Omnicom and Publicis are merging, citing the need to stand up to Google and Facebook as a key reason.
So, what does this mean for…
So far, not much. The FT is calling it a “lukewarm reaction” as Omnicom shares fell by 0.55% and Publicis’s rose by 0.25%. Hardly transformational.
…their competitors’ businesses?
Well, WPP’s Sir Martin Sorrell is apparently very happy – at worst, two of his major competitors will be distracted for months with a complicated integration and trying to extract an estimated US$500m of synergies while clearing regulatory hurdles in 45 countries.
At best, for WPP and the other larger agencies, there are some choice clients to pick up: the newly-combined group can’t work for both Coke and Pepsi, nor Apple and Samsung, nor Verizon and AT&T. No doubt pitch lists are already being drawn up.
…their competitors’ acquisition strategies?
Most of the next tier of global marketing services groups will now be considering how to bulk up, in order to compete with Publicis Omnicom and in order to be able to face up to Google and Facebook. It has already been suggested that WPP could acquire Interpublic, and Havas and Vivendi might merge.
But scale might not be the answer – David Jones, CEO of Havas, was quoted as saying “Clients today want to be faster, more agile, more nimble and more entrepreneurial, not bigger and more bureaucratic and more complex.”
This means that we could see more specialism in the larger agencies, as they focus on areas of relative strength and stop trying to compete across the board with Publicis Omnicom.
…independent digital agencies looking to grow?
It will be harder to compete with the buying power of such an enormous group, but it will be harder for such an enormous group to respond quickly to client needs with personalised creative solutions.
…independent digital agencies looking to exit?
Although the combined entity has earmarked US$500m a year for acquisitions, the merger reduces the number of major global players in the marketing services space. Publicis in particular has recently focused on acquiring smaller agencies in the digital sector (as well as targeting emerging markets); while Omnicom has been more selective than it had been prior to the downturn, it has remained a focused and deliverable acquirer for digital agencies, especially with sector vertical focus and expertise. So as they merge, two potential acquirers are reduced to one.
But this is only a part of the universe of acquirers for an attractive digital agency.
As the marketing, tech, content and other sectors continue to converge, the best deals and the most attractive valuations are coming from looking beyond ‘the usual suspects’ in marketing services. Omnicom’s John Wren has complained that “there are new competitors coming in every single day” – and all these competitors are potential acquirers.
Although one of the ostensible reasons behind the merger is to allow Publicis Omnicom to stand up to Google, this actually betrays a pretty old-fashioned media buyer mindset. A merger of this scale and this complexity, merely to be able to negotiate better discounts on advertising space?
Meanwhile, the online and mobile landscapes continue to evolve rapidly and the niches which have emerged are better exploited by smaller, nimbler, tech-led outfits than Leviathans of this scale. Operationally, this means business as usual for companies in the ad-space.
And if they’re looking for exit? Publicis and Omnicom have struggled to shift from a creative agency mindset to a more technology-driven one better suited to the ad-tech space, and the most complementary acquirers for most fast-growing businesses in the space will come from beyond these big beasts.