Unpacking Omnicom-IPG merger: Bigger, bolder, and lessons learnt

Whenever two global giants consider merging their businesses, it inevitably grabs attention. This is precisely what’s happening with Omnicom Group’s recently announced acquisition of Interpublic Global (IPG).

This development brings to mind another major news story from a decade ago: Omnicom’s proposed merger with Publicis Groupe, which would have made it the largest agency group globally, surpassing WPP. The bold idea for such a merger originated with Maurice Lévy, the then-CEO of Publicis.

At the time of its announcement, the merger was set to combine Publicis and Omnicom, which had annual revenues of $8.8 billion and $14.2 billion respectively in 2012, along with market capitalisations of $14.6 billion and $16.7 billion.

However, while regulatory challenges loomed large over that merger, the deal ultimately fell apart due to disputes over leadership roles. Omnicom insisted on retaining the top three positions, including CEO and CFO, which undermined the premise of a “merger of equals.” Such a structure raised valid questions about whether the proposed partnership was ever truly balanced.

For me, the cultural integration of Omnicom and Publicis seemed a particularly fascinating aspect. French corporate culture is distinct from that of both the British and Americans, which could have posed significant challenges. It’s likely that cultural incompatibility wasn’t sufficiently considered during the decision-making process and only became evident later.

The Omnicom-IPG merger appears to sidestep this issue. Both companies are American, which should lead to a more seamless cultural alignment. The merger is expected to result in a combined market capitalisation exceeding $30 billion. Reports suggest Omnicom, valued at $20 billion, will pay between $13 billion and $14 billion for IPG, which has an estimated valuation of $11 billion, according to The Wall Street Journal.

Globally, this merger will make the combined entity the largest advertising holding company, outpacing WPP by a significant margin. However, the scenario in India may differ, where WPP has a historical advantage due to its long-standing presence and established operations.

Client concerns

What impact do these mergers have on clients? Often, clients react cautiously, unsure of how their accounts will be managed under the new structure. During the earlier Omnicom-Publicis merger discussions, many clients reportedly terminated their relationships with the agencies, citing uncertainty.

According to Reuters, the two companies lost billions in business pitches during this period, with $1.5 billion worth of business walking out in the month before the merger talks were abandoned. This demonstrates the critical need for swift and decisive action during mergers to retain sensitive clients, who are the lifeblood of any advertising agency.

Approvals and conflicts

Regulatory approval remains a common stumbling block in any major merger or acquisition. This deal’s timing, coinciding with Donald Trump’s ascension to the presidency, adds an element of unpredictability. The stance of the incoming administration and its Republican Party toward the advertising industry could influence the regulatory review process. Hopefully, their views will be favourable.

Gaining shareholder approval should be less of a hurdle, as they are likely to support a deal that promises significant financial benefits. However, there is potential for conflict of interest, as the two agencies share clients in similar industries.

In such cases, lessons can be drawn from Japanese advertising giants like Dentsu and Hakuhodo, who manage multiple competing clients by implementing stringent firewalls between agency teams.

As someone once observed, two competing brands might create a conflict of interest, but managing three or more in the same category can signify expertise. For instance, handling five car brands effectively demonstrates a deep understanding of the automotive sector, reducing concerns over conflicts.

A new era for advertising

This merger also highlights the evolving priorities of the advertising industry, where agility, scale, and technological capabilities are paramount. By combining their talent and cutting-edge tools, Omnicom and IPG aim to deliver campaigns that are not only globally impactful but also tailored to local markets.

Industry observers see this move as a potential catalyst for further consolidation among competitors, ushering in a new wave of transformation in the field. For the advertising world, it signals that collaboration, rather than competition, may be the key to thriving in an increasingly dynamic and interconnected marketplace.

As this historic deal unfolds, all eyes will be on how the combined entity executes its ambitious vision for the future and whether it can set a new benchmark for the industry.

- Prabhakar Mundkar, advisory director, Miami Ad School India.