Speculation Continues on the Omnicom-Publicis Merger

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REUTERS/Shannon Stapleton
REUTERS/Shannon Stapleton

The potential Omnicom Group and Publicis Groupe merger has turned into a great political debate within direct marketing circles. CEOs John Wren and Maurice Lévy, respectively, promise prosperity, but many in the industry question their motives. And as with political campaigns, economic lines are drawn. Stanton Kawer, CEO of global marketing agency Blue Chip Marketing Worldwide, says the consolidation only solidifies the divide between privately and publicly held corporations. But private and public companies each have their own advantages, and these distinguishing factors become more and more apparent as the industry waits to see if the rich get richer.

Several marketing industry experts weigh in on the conglomerates' past, present, and hazy future.

Should the merger surprise marketers?

Although Larry Chiagouris, professor of marketing at Pace University's Lubin School of Business in New York, says that numerous advertising and media executives had predicted an industry merger or acquisition for some time, he notes that the timing and the size of the mammoth merger caught many off guard. “I don't think anyone had a clue,” he says.

But perhaps, those who are surprised should have analyzed the companies' pasts more closely. Although many say that the two companies' rosters of agencies are like a mirror image, on paper the two companies appear to be each other's strategic soul mates—each one filling a void in the other's offerings. For example, Omnicom has a long history of scooping up leaders in the CRM, public relations, and specialty communications sectors—such as Wolff Olins, Ketchum Communications, and TBWA. According to the company's 2013 Q2 results, CRM accounted for 34.5% of Omnicom's business (although it experienced a -0.5% organic growth rate), PR accounted for 9.2% of the company's business (experiencing a 3.8% organic growth rate), and specialty accounted for 7.9% of overall business (experiencing a 7.8% growth rate). Contrastingly, Publicis took a more digital route. In 2006 the company purchased Digitas for $1.3 billion, which merged with LBi to form DigitasLBi this year, and went on to establish VivaKi in 2008 to broaden the company's digital expertise. According to Publicis' 2008 first half results, digital accounted for 18.8% of the company's total revenue; it now accounts for approximately 37%, according to the 2013 first-half results. Hence, each company can benefit from a fully equipped tool belt.

A cardinal coalition

The success of this potential merger will be determined by two primary factors: client reactions and the impact of scalability. And although Wren and Lévy expect the merger to lead to $500 million in “efficiencies,” those efficiencies have not yet been defined. It's possible, notes Paul Pellman, CEO of marketing analytics provider Adometry, that these efficiencies consist of leveraging data and digital marketing technologies at a grander scale. Pellman noted in “12 Things Direct Marketers Need to Know about the Omnicom-Publicis Merger” that the combined resources and assets could let to a “more sophisticated” ad buying platform—one that drives audience attributes and real-time performance data to produce stronger results for less.

Chiagouris adds that if Omnicom and Publicis Group are smart, the two companies will take their combined volumes of data and use it for research and development purposes to provide more consumer insight.

Then again, there are some executives, like Paul Marobella, president of integrated marketing and advertising agency Havas Discovery, who acknowledge that while scale matters, it isn't everything.

“Of course scale is important, but what does that really get a digital agency?” Marobella asks. “Maybe some scale in display buying, but not in search or social [because] they're bidding environments. Does it get them scale in data? Maybe in the sense they can pool R&D funds to create the next DMP/DSP...but the data belongs to the clients, not to the holding company. But, I don't know how it gets them scale in ideas or strategies.”

And while the combined holding company may harness opportunities for change, its client obligations and expectations remain the same, Chiagouris notes. Hence, big clients may seize the opportunity to renegotiate deals and get a better set of terms and conditions if they're not satisfied.

Or a behemoth blunder?

On the flip side, Larry Deutsch, EVP and general manager of Blue Chip, says scale has no connection to innovation and can actually end up hurting the conglomerates rather than helping them.

“Brand marketing is, and always will be, about insights, creativity, and innovation, which are not dependent on scale,” he says. “In fact, one could argue that they're inhibited by scale due to bureaucracy, silos, and fiefdoms.”

And with competitor brands like PepsiCo Inc. and Coca-Cola Co. sharing the same roof should the merger be approved, marketing insiders are already wondering how soon brands would tire of sharing their resources and walk.

“If you're a big brand, and you were a relatively big fish in a large pond at your agency, but now suddenly at the holding company level you have a competitor who's bigger than you, you're probably not going to get the best and the brightest and the latest and the greatest,” Chiagouris says.

However, it's the smaller brands that are more likely to flee first, which could potentially benefit smaller agencies. Chiagouris predicts that this shifting will begin within the next three to six months assuming the merger is a go.

This notion of competitors rushing to new agencies may be overly dramatic. Some competitive brands have learned to live peacefully. For example, Kimberly-Clark and Unilever are both Ogilvy Public Relations' clients. And Ogilvy has three of the top seven pharma companies as clients: Merck, Pfizer, and GSK.

Big is never big enough

Although this merger is described as a merger of equals, the scale is bound to tip. Chiagouris predicts that Omnicom's “better management” will cause the company to come out the victor. “Omnicom is playing with a better set of cards in terms of its client list,” Chiagouris says.

As news about the merger begins to die down, the industry can only wonder: Who's next? Chiagouris is among many who expect WPP to be the organization that will make the next M&A move and says the competition will only heat up from here.

“There's no such thing as being big enough. Everyone wants to be the biggest, and now the race is on.”

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