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The Omnicom takeover of IPG will no doubt lead to a major restructure, with roles disappearing as part of the fallout as the two agencies pull together a giant corporate jigsaw.
But there is one class of employee who has a better chance of surviving the process, expected to take two years.
“If you're associated with any revenue stream at all, you're gold, don't worry about it,” Omnicom CEO John Wren told a briefing of analysts.
Analyst Adrian de Saint Hilaire of Bank of America wanted to know if IPG agencies would be folded into the Omnicom structure.
This is a major question. Will Omnicom keep all the agency brands -- including McCann, FCB, The Martin Agency, Mullen, TBWA, BBDO, DDB -- or will they be merged?
“We'll make appropriate decisions based upon what's going to lead to greater growth and greater career opportunities for our best and talented people,” Wren replied.
And he urged any employee listening not to get too "hung up" about it. Don't be concerned.
“We will fix whatever it is we have to fix ... that's not a pressing issue.”
The savings, according to the deal estimates, add up to annual cost synergies of $750 million.
While “cost synergies” traditionally means more value when combined, the process usually comes with job losses as duplicated functions feel the fiscal knife.
The marriage of rivals brings together the world’s third biggest advertising group, Omnicom, with the fourth, IPG, to form a company with 100,000 people and revenue of $25.6 billion (net revenue of $20 billion), with 57% of that in the US.
Clients include Amazon, Unilever and AT&T.
The plan is to streamline the organisation, align complementary businesses across disciplines.
Omnicom CFO Phil Angelastro said a number of areas have been identified to pursue when it comes to synergies.
“And some of them certainly relate to other things like duplicative spend with third-party vendors, our real-estate footprint, further consolidation,” he told analysts.
“Given these two groups are coming together, there will be opportunities there that we've thought quite a bit about already. And leveraging the technology platform and AI investments … is certainly both going to provide some opportunities to be more efficient together, as well as continue to invest in the technology that will continue to rapidly change at just a different level.
“Rather than having to make two independent decisions, two independent sets of investments, we'll have a much more efficient and effective position to make the investments we need to continue to make, and be able to take advantage of the power of both of us coming together to be one.
“So, we expect to achieve some synergistic efficiencies from all those things. And we've spent quite a bit of time preparing for that, but we're also going to spend more time, certainly between now and the closing, so that we hit the ground running.”
However, Wren emphasised that early talks about a merger were based on strategy and not cost savings.
The questions the two agencies asked: Where's the industry moving to? How can we drive growth? How can we bring clients a portfolio that is the most comprehensive, whether from a capability point of view or from a delivery geography point of view.
Analysts at Wells Fargo see strategic merits in the deal but urge investors to be patient.
“Agencies are human capital businesses, and they can draw the best resources from each to improve client services + increase competitiveness,” the analysts write in a note to clients.
“Media buying (estimated 30%+ of revenues) is scale-based and should undoubtedly improve.
“However, the next 2 years means regulatory approval + integration, and there could be employee and client churn.
“We think investors will need to be patient and wait to see how things shake out competitively as the future combined company emerges.”
Shares in Omnicom fell back on the news and have since traded well below year highs.
As the deal works through the regulatory process, both agencies could be susceptible to poaching by competitors of clients and/or talent.
However, agency management is confident the combined structure will not lead to client conflict and that the two cultures can be successfully integrated.
At JP Morgan, analysts: “While this deal is not without execution and integration risk, we think the logic is sound and that in time the merits and EPS (earnings per share) accretion will be better appreciated.”
Forrester principal analyst Jay Pattisall says the aggregation of resources will accelerate Omnicom and the industries march to AI as a foundational element of marketing creation and production.
And the merged entity would enjoy a significant scale of technology, data, media clout, and the ability to produce content at the velocity and volume of media impressions.
“We anticipate that IPG Mediabrands will likely roll up to Omnicom Media Group, IPG’s growing commerce practice will likely be aligned with Omnicom’s Flywheel Digital unit, and Acxiom will likely be aligned with the technology group managing Omni, the holding company’s suite of proprietary technology,” Pattisall says.
“The combination of the Omni marketing operating system, Flywheel Digital, and Acxiom capabilities is a potent one, enabling Omnicom to better compete with Publicis Groupe, its Epsilon PeopleCloud, and recent commerce acquisition of Mars United.”
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