U of Digital Newsletter - 12/11/24 (free)

December 4th-December 10th

Below is a roundup of last week’s notable industry news, with summaries and our opinions. It’s an end-of-the-year, holiday-season, shopping spree!

Check Out Ryan Barwick’s Piece For Marketing Brew: “Shiv Gupta, ad tech’s educator, is preparing for category ‘whiplash’ in 2025”

Top Stories 👁️ 

Omnicom to Acquire Interpublic in Deal That Will Reshape Advertising Industry🔒
Source: The Wall Street Journal
December 9th, 2024

Summary: Omnicom Group's all-stock deal for Interpublic Group (IPG) would create the world's largest agency holding company. The merger of the industry's third- and fourth-largest agency holding companies would collectively generate more than $20B in net annual revenue and help them better compete against Publicis, Google, Meta, and other tech platforms that are expected to encroach into their territory with the rise of generative AI.

The deal values IPG at more than $13B and will likely close in the second half of 2025 if it passes government scrutiny. Omnicom and IPG expect cost synergies of around $750M within two years. The merger will bring together the Omnicom Media Group and Mediabrands ad-buying units, as well as storied agencies TBWA, BBDO, and FleishmanHillard from Omnicom and Weber Shandwick, McCann, and FCB from IPG.

The combined company will operate under the Omnicom brand led by Omnicom Chairman and Chief Executive John Wren. Omnicom's Phil Angelastro will continue as CFO. IPG CEO Philippe Krakowsky and President and COO Daryl Simm will be co-presidents and COOs of Omnicom.

IPG's shares rose 7% after the acquisition was announced, while Omnicom's fell nearly 9%. Even with the boost, IPG's stock is flat for the year, while OMG's has increased about 15%. In comparison, industry leader Publicis has seen its shares soar about 33% in 2024, driven by a slew of client wins and well-executed tech and acquisition strategy that includes digital consultancy Sapient, data firm Epsilon, and influencer marketing platform Influential.

Omnicom bought e-commerce company Flywheel for $835M earlier this year but has otherwise opted for smaller acquisitions. It was reportedly attracted to IPG's Acxiom business, which IPG acquired in 2018 for $2.3B, giving it a foothold in data management tech

Last week, IPG sold the digital experiences company Huge to private investment firm AEA Investors for an undisclosed price tag. It also recently bought Intelligence Node, a retail analytics firm based in Mumbai in a deal valued at nearly $100M.

Deal Grades:
IPG: C
Omnicom: B-

Opinion: There’s only one agency holding company that has been kicking ass in recent years, and that’s Publicis. IPG and OMG have done just OK, while WPP and Denstu have been sucking wind:

Is it possible that the thought process behind the merger is as simple as follows?

 “We’re two of the biggest holding companies, and Publicis is beating us both right now. What if we combined forces to get more scale than Publicis, use that scale to throw our weight around, get better rates, win new business based on better rates, get even more scale, get even better rates, and keep going and going and going?!”

Maybe! After all, it’s not rocket science, it’s just agency business. 

But that logic may not work in today’s day and age. That’s pre-AI agency M&A calculus. In 2024 and 2025, when investors look at a mega-huge agency tie-up, they are going to be expecting synergies that go way beyond getting better rates. AI means that M&A can’t just deliver 1+1=3 — it now needs to deliver 1+1=10. Investors are going to expect AI to amplify the value of everything: data assets, people, capabilities, and tech. Can two massive, slow-moving organizations pull off that kind of transformation and meet Wall Street’s expectations? Doubtful.

Another angle to consider:

1. Omnicom stayed on the sidelines when the hold cos started acquiring data tech (Publicis -> Epsilon, Dentsu -> Merkle, IPG -> Acxiom). This merger gives Omnicom data tech. 

2. IPG stayed on the sidelines when hold cos started acquiring commerce media tech (Publicis -> CitrusAd, OMG -> FlyWheel Digital). This merger gives IPG commerce media tech. 

Now “Intercom” has both data and commerce media tech and can (theoretically) go toe to toe with Publicis. 

Big picture, we think this deal is dumb. These agency hold cos are already poorly run, overly complex, and bloated. Integration will be long and painful. There will be vicious politicking, rampant confusion, and morale will plummet. Clients will be unhappy. And remember, agency business is fickle. By the time it’s all said and done, 2+2 could equal 3. Or less. 

Other big hold cos and major indie agencies are probably salivating at the new business opportunities that are going to shake loose from this deal...

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That’s It For This Week 👋

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