The global advertising industry has been turned on its head with the confirmation that Omnicom and Interpublic (IPG) have agreed on a $30 billion mega-merger to overthrow WPP PLC (LSE:WPP) as the largest advertising firm in the world.
First rumoured in a Financial Times article on Monday morning, Omnicom confirmed the merger in a subsequent press release.
“The combined company will bring together unmatched capabilities, including the industry’s deepest bench of marketing talent, and the broadest and most innovative services and products, underpinned by the most advanced sales and marketing platform,” Omnicom said of the proposed combination.
“This combination represents a tremendous strategic opportunity for our stakeholders, amplifying our investments in platform capabilities and talent as part of a more expansive network,” added Philippe Krakowsky, IPG’s chief executive.
According to one industry insider, IPG had been up for sale for a while, with French heavyweight Publicis initially rumoured to be the suitor.
Confirmation that US giant Omnicom was the actual buyer came as a surprise, but it nonetheless represents a stellar move that is expected to have a profound impact on the global advertising sector.
A changing landscape
As it stands, there are currently five major players in the advertising industry.
WPP, Publicis and Omnicom are at the top of the pile, with Japan’s Dentsu and IPG, though influential, one down in the pecking order.
Omnicom’s merger with IPG, if given the regulatory green light, has the potential to completely overhaul this landscape, with Omnicom-IPG at the apex and everyone else peering up from below.
If the merger goes ahead, WPP will cease to be the number one advertising firm in terms of annual revenue take.
Omnicom and Interpublic have a combined annual revenue take of more than $25 billion. In comparison, WPP booked slightly less than £15 billion ($19 billion) in sales in its last financial year.
There is more to the acquisition than a simple revenue-comparing contest though.
In 2018, IPG secured a prized data asset through the $2.3 billion acquisition of Acxiom Marketing Solutions.
Omnicom’s data set is seen by the industry as a bit of a laggard, thus the rationale behind snapping up IPG is plain to see.
M&A to escalate
Industry insiders are now wondering, what next?
One course of action could be for Publicis to hone in on Dentsu’s international business, or perhaps a smaller French rival such as Havas.
Because of issues at the balance sheet level, WPP’s media investment business GroupM is less likely to sniff out an acquisition, but at this point, everything is on the table.
Conversely, WPP could find itself back in the crosshairs of private equity following take-private rumours that were swirling around at the tail end of 2023.
Whatever happens, this is undoubtedly the dawn of a new era in advertising M&A. It remains to be seen who the winners and losers will be.
Potential job losses
Commenting on the Omnicom-IPG merger, AJ Bell investment analyst Dan Coastworth said: “A merger of two companies this size would inevitably involve widespread cost-cutting as the first course of action.
“That could give WPP a window of opportunity to try and poach some clients while its enlarged rival’s management is distracted.
“On the other hand, a merger would bring together the cream of the crop from both companies which would aid their narrative during account pitches.”
Coatsworth suggested that the mega-merger is the culmination of a wave of smaller M&A deals in recent times.
He said: “It’s somewhat ironic given that the sector’s growth strategy has been hinged on non-stop acquisitions, snapping up smaller companies to gain scale and broaden the client base.
“To now see mergers among the top players would suggest the industry has run out of smaller things to buy – effectively hitting a ceiling and not knowing where to go next.”