The failed Omnicom-Publicis merger was guilty of betting against the future it was trying to plan for
Last July, the world's second and third largest advertising agencies, New York-based Omnicom and Paris’ Publicis Groupe, announced plans to merge. Together, the two companies would form a $35 billion Godzilla of the advertising market with $24 billion in annual revenues. According to RECMA figures, in North America the Publicis Omnicom Group would have opened its doors with over 40 percent market share, twice that of WPP, its closest competition here.
On Friday, Omnicom and Publicis announced that they’d decided to break up before the marriage had been consummated, destined now to go down as the Gwyneth Paltrow and Brad Pitt of failed corporate mergers. While the finer points of the deal’s collapse were debated ad nauseam at the end of last week, the truth is that the merger simply lacked any business sense. It was conceived of to compete with new digital ad technologies, but doubled down on the lumbering, top heavy agency infrastructure that was being so outmaneuvered.
This whole saga all began so quaintly and with such hope. Publicis and Omnicom’s respective CEOs, Maurice Levy and John Wren, announced the deal over champagne in front of a picturesque Parisian landscape. With broad grins they talked about how the resulting agency would have the sort of market power to implement at scale the new technologies needed compete against Google and Facebook, taking back some of the ad spend moving across to digital media. It was an epic deal, the result of 10 months of bureaucratic heavy lifting. They were photographed signing contracts the size of a phone book.
And yet, here we are. It appears that there were still too many sticking points and the idea swiftly collapsed – cause of death: execution.
As may be expected, significant egos were involved. Levy and Wren had agreed, awkwardly, to be co-CEOs of the new company for 30 months post merger. Omnicom’s Wren, who is younger by 11 years, would then continue as CEO. According to a consensus of the bevy of off the record sources cited in the weekend’s reporting, the two companies began tripping over each other at the start, struggling to work out who, in a "merger of equals," would be buying whom. Publicis reluctantly agreed to be the purchased party, but then the CFO role became a new battleground.
Publicis didn’t want both the new company’s CEO and CFO to come from Omnicom. But Omnicom didn’t want to give up on either key post. As they exist independently, Publicis has a centralized structure, while Omnicom is run as a series of looser subsidiaries. The CFO, therefore, would be too crucial in divining which direction to take.
There were reportedly a myriad of similar cultural clashes, all of which emerged before even considering the macro identity crisis issue of an American company merging with a French one.
Shareholders and analysts both saw the deal as insanity from the outset. In a $35 billion merger, the scale of the deal would only drive $500 million per year in new efficiencies. The conflicts of interest it created, however, were endless: Apple and Samsung, Coke and Pepsi under the same agency roof. Each company had begun shedding clients, confused by the move.
Shares in Omnicom increased after it was announced that the merger had been canned. No one is crying today.
The Omnicom Publicis Groupe would have had over 100,000 employees and a joint market cap of $42 billion. As Avi Dan wrote in Forbes, Google has 47,000 employees and a market cap of $353 billion. For further context, Facebook has 6,000 employees and a cap of $153 billion. Instagram has 200 million users and just 45 employees.
They say sometimes the wrong things happen for the right reasons. This may be such a case, with it appearing like Omnicom and Publicis have each dodged a bullet. The very deal seemed counter-intuitive to the future it was meant to prepare for.
The global share of ad spend moving online is expected to spike from 20 percent last year to 26 percent by 2016, according to ZenithOptimedia. If demand is there, advertising technology companies, the ones taking up much of this share, can scale like weeds. Omnicom and Publicis would have found themselves in the weeds, people heavy, technology light, and still unable to keep up.
Going twice as big would have made them look twice as old, meaning that both companies should feel sweet relief at the pre-emptive end that has come to this awkward union.