Interpublic disclosure
I have worked at Interpublic twice during my career. Once at the very start of my career and more recently at McCann Health. I was never vested in Interpublic stock and I don’t own any Interpublic or Omnicom shares. This is not financial advice I am not telling you what you should do.
This post is not intended to be, and shall not constitute, an offer to buy or sell or the solicitation of an offer to buy or sell any securities, or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
I am pointing out the bits in discussions that I found interesting, and some bits that I found deathly dull, but pertinent.
The shape of it
The acquisition would be done by issuing stock. It wouldn’t involve Omnicom’s cash reserves or raising debt to make the purchase. Following the deal, the new Omnicom would be owned by
- 60.6% of former existing Omnicom shareholders
- 39.4% of former Interpublic shareholders
Deal expected to close in the second half of 2025. Once it is closed Omnicom expected to get $750 million in cost savings over the following two years. Combined cashflow of more than $3 billion a year.
Investment analyst call
The investment analyst call was led by Omnicom’s John Wren and featured Phillippe Krakowsky. One of the main factors raised on the call by Wren was the reduction on debt to EBITDA of Omnicom from 2.5x to 2.1x. The combined organisation also had a more balanced maturity profile on debt.
The deal impacted scale in two ways:
- Efficiencies due to scale.
- Increased capacity to borrow and fund future purchases.
What was less clear from the call was the value to customers. Healthcare was cited as an area of opportunity as both businesses had a substantial healthcare marketing offering. But nothing on how to capitalise on the opportunity.
What I didn’t hear was how the combined business was going to get to 750 million of savings, but that they were confident that they could hit that number in two years after the deal closed.
I also didn’t hear a clear position on how the combined firm would deal with the drain of advertising revenue from marketing conglomerates and media companies to platforms. There was some lip service given to being able to better address generative AI related change as a larger group.
Finally there was no analysis, or consideration about how Omnicom and Interpublic would surpass their competitors innovation. Instead the focus was purely on existing combined size.
Shareholder value
At the time of the announcement, the deal was said to offer a premium in terms of value to Interpublic shareholders.
As for Omnicom shareholders, they claimed: The transaction will be accretive to adjusted earnings per share for both Omnicom and Interpublic shareholders.
Slow gains – which might make taking that money out of their existing shares and instead putting it in a S&P 500 tracker ETF seem more attractive.
Industry animal spirits (aka what people were saying in my feeds and op-eds)
The reaction on social platforms was shrill and overwhelmingly negative. The reasons given included:
- The inevitable job cuts.
- The internal preoccupation that comes from two large organisations coming together.
- The lack of clarity about unique benefit that the new company would provide.
- The two-year inward focus on consolidation would allow more innovative competitors (depending who you listened to this would be Accenture, Brandtech, Dentsu, Publicis, Stagwell) gain further ground.
Later on, the discussion moved on towards the reactionary nature of the discussion itself.
From within Interpublic itself, I heard concern about the future from people in different parts of the business. This was down to a lack of internal communication rather than anything specific in nature.
Left unchecked, it could be morale sapping and might encourage some of the best talent to leave for more stable environs.
Update: January 17, 2025 – Campaign magazine podcast. The most interesting argument made in the podcast was that the media buying and creative arms of Interpublic are seen as having little-to-no-value and that deal from Omnicom’s perspective was all about Interpublic’s data platform.
Any self-respecting investment banker worth their salt would be able to break the conglomerate down into constituent parts and sell it off (as what has happened with Interpublic agencies R/GA and Huge already).
- In the PR and social / influence sector Golin and Weber Collective would make natural groupings to be spun off and still with enough scale to compete on the global stage.
- From a creative agency perspective, it would be a similar situation with Mullen Lowe and McCann World Group.
- IPG Health looks like it had already been pre-packaged for private equity when it was carved away from its advertising groups and nominally has a full suite of offerings to provide the pharmaceutical sector clients.
- For bits of networks that you can’t sell. For instance if the purchaser doesn’t want to have an agency office in Malaysia (Malaysia is only in here hypothetically, in reality I have no idea why more global corporate headquarters aren’t located in the Cameron highlands); you can recoup some of your money by facilitating a management buyout. These are more common than you realise.
Instead the podcast participants think that clients are just all about first and third party data platforms. I would argue that’s a simplistic view that ignores:
- The relative complementary nature of the Interpublic and Omnicom networks in terms of product spread and geographical reach. In most markets, one or the other network has an appreciably stronger position. Where there is consolidation needed, this would most likely result in redundancies in the Asia Pacific and European regions.
- Client brands need for continued brand building and the current chaos in the major platforms pivoting to the new presidential administration’s direction.
- ‘Bad neighbourhoods’ for brand content will adversely affect the ability of brands to advertise or promote themselves effectively. It’s harder to build effective brand memory structures in what consumers are likely to perceive as a hateful, or hostile environment.
- Finally there is the the little acknowledged fact that social platform advertising is disproportionally supported by D2C marketing and varying forms of hucksterism from Temu to get-rich schemes. This isn’t the kind of businesses that fill up the client ranks of large marketing conglomerates like Omnicom and Interpublic.
What business thinking says
Harvard Business Review claims that 70 to 90 percent of mergers and acquisitions fail. By comparison, anywhere between 25 and 80 percent of large IT projects fail. 70 to 85 percent of new consumer product launches fail. TL;DR running a business is tough.
Secondly, Omnicom and Interpublic grew historically through acquisitions. Which would mean that they understand how to move a business forward and integrate their new acquisition.
The business model that marketing services conglomerates historically worked on was a mix of an arbitrage play, driving integration and efficiencies.
Arbitrage
Omnicom and Interpublic both relied on a few ways to gain an arbitrage benefit:
- Private companies are generally cheaper to buy than publicly listed firms. It’s a matter of economics, publicly listed firms list in a closer to perfect market. Secondly, buyout contracts to get the management to meet financial targets that facilitate either a faster financial payback or a cheaper price on the business.
- Larger companies like Omnicom can borrow money at more favourable terms than a small to medium-sized business. Larger companies that have lower levels of leverage will be able to get money in a more favourable format than more highly leveraged business of the same size.
Driving integration
Historically these groups take a light touch on integration for agencies where the capabilities are common to more than one agency, WHERE the acquired agency is hitting the ambitious financial targets set by the holding company. Integration in terms of integrated new business pitches and common selling of new products or capabilities.
This might be where the client is looking for an integrated solution. Or it might be where it makes sense to pool resources to deal with a new area like Amazon advertising and retail media or generative AI services.
Once a newly acquired business has become ‘part of the furniture’ and the founders have stepped away, you are more likely to see it become more deeply knitted into the holding group business fabric. This is likely to include common systems and processes: time-tracking software, HR and talent management software, accounting software, cloud services and productivity software.
Efficiencies
Sources of efficiencies overlap integration through standardisation and being able to buy in bulk. A second source of efficiency is consolidation of common business functions:
- Accounting / finance
- Business development
- Freelance staff pool
- Human resources and recruitment
- IT
- Knowledge management
- Legal services
Open questions
Both Omnicom and Interpublic have experience of integrating and spinning off parts of their businesses. What’s different about the Interpublic acquisition is that the scale involved is different from anything else that’s been undertaken in the sector.
- How will this be done successfully?
- What (additional) value is in the resulting business for clients?
ADWEEK polled marketers to better understand their attitude to the merger. On balance they weren’t supportive of the deal. Twice as many respondents were negative about the deal compared to those who felt positively about it. The good news was that almost 60 percent either hadn’t made their mind up or were on balance neutral. At this point I need to caveat the results with the note that there wasn’t a breakdown on the types of respondents in terms of their role and seniority.
But it implied that Omnicom had a serious communication job to be done convincing wider stakeholders on the merits of the deal.
The problem might be greater than telling a better story. By some estimates 60% of Interpublic and Omnicom scopes of work are allegedly already understaffed – if true, likely putting customer satisfaction at risk. And that’s before the reduction in headcount to match the need for cost savings.
More information
Omnicom SEC filings – Omnicom Group Inc. Investor Relations
IPG Mediabrands To Lay Off 103 Staffers | AdWeek – this is fast, if related to the Omnicom acquisition announcement
Things to Consider During Blackout and Quiet Periods | Gilmartin Group
Don’t Make This Common M&A Mistake | Harvard Business Review
More Marketers Disapprove of Omnicom Acquiring IPG Than Approve | AdWeek
Most new products fail: Implicit sensory testing can help beat the odds | Food Navigator Europe
