A game-changing merger, Marketing & Advertising News, ET BrandEquity

In a historic move set to reshape not just the global media landscape but also India’s, Omnicom Group and The Interpublic Group (IPG) announced their merger on December 9, creating a global advertising and marketing powerhouse. The implications of this merger, however, extend far beyond the global market, with India, a key hub for media and advertising, poised to experience significant changes in its media industry dynamics.

This is not the first time Omnicom has pursued consolidation on such a scale. In 2013, Omnicom and Publicis Groupe made headlines with a proposed merger valued at $35 billion, which would have created the world’s largest advertising company. However, the deal fell apart within months due to regulatory challenges.

Experts have shared that while consolidation has been expected for years, it ultimately stagnates the industry and poses challenges for smaller players. The announcement of the Omnicom-IPG merger signals the start of a new era, with the combined entity poised to challenge the current market structure and potentially reshape India’s media landscape.

A new era of dominance?

The combined 2023 revenue of Omnicom and Interpublic stands at $25.6 billion, surpassing that of WPP, which reported a revenue of $18.87 billion (£14.8 billion) for the same period. This merger marks the creation of a global advertising powerhouse, and its impact is expected to be felt in both the global and Indian media landscapes.

Anita Nayyar, seasoned marketer and advertising professional, commented on the merger’s potential consequences, stating, “It’s an unhealthy competition, with top networks consolidating power and leaving little room for smaller players to survive.” The merger between Omnicom and Interpublic will create a more dominant player in the market, intensifying the existing trend of monopolistic competition in the media industry.

She also noted that consolidation within the media agency sector is not surprising and is occurring globally, similar to recent mergers in the TV industry, such as the Reliance Industries and Walt Disney merger. Nayyar emphasized that this trend of consolidation is inevitable, driven largely by the financial strength of major players to acquire others. In this case, Omnicom’s acquisition of IPG serves as a prime example. Moving forward, only four or five dominant networks will likely remain at the top, with Madison being one of the few homegrown players in India among global giants like WPP, Omnicom, and others.

The transaction, valued as a stock-for-stock deal, is set to generate $750 million in annual cost synergies while providing significant financial strength. Omnicom shareholders will own 60.6% of the combined entity, while Interpublic shareholders will retain 39.4%. This merger is expected to close in the second half of 2025, subject to shareholder and regulatory approvals.

With a combined strong balance sheet and a debt-to-EBITDA ratio of 2.1x, the new entity is positioned to not only dominate the market but also reinvest its cash flow into dividends, acquisitions, and further expansion, solidifying its position at the top of the global advertising and marketing industry.

Sanjay Trehan, Digital & New Media Advisor, referred to the merger as that of behemoths. He acknowledged that while size matters and consolidation may bring efficiencies, he questioned its impact on the nimbleness and creative energies of the merged entity. “It may become a juggernaut, sweeping everything under its sway, but it might not be as agile or innovative as smaller, smarter players,” he said.

He further added, “It’s good from a consolidation and efficiency perspective, but not so much for out-of-the-box thinking or adopting an innovative, disruptive approach. Both agencies were already large, and now they will become the biggest. Sometimes, being too big is unwieldy. Let’s see how this plays out in the age of cross-platform play, Generative AI, and digital advertising.”

Conflicts & impact on small agencies

Omnicom and IPG collectively own a wide range of brands across various marketing and advertising sectors. Omnicom’s portfolio includes top global agencies like BBDO, DDB, TBWA, OMD, and PHD, covering services such as advertising, media planning, public relations, and branding. IPG, on the other hand, owns agencies like McCann, FCB, MullenLowe, and Weber Shandwick, specializing in advertising, digital marketing, media, public relations, and creative solutions.

According to Ashish Bhasin, founder of The Bhasin Consulting Group, WPP has traditionally dominated India in terms of scale, but with the merger of IPG and Omnicom, there will be a new major player in the market, offering greater scale, improved negotiating power, and more opportunities to invest in technology and talent. However, he also points out that this consolidation could lead to job losses due to synergies and manpower duplication, which will need to be addressed over time.

He further explained that the success of such a merger, particularly in India, depends heavily on how people’s issues are managed. He highlighted how, when Dentsu acquired Aegis Media, significant attention was given to handling leadership roles and employee concerns in each country. In India, the same level of care will be essential to ensure smooth integration.

“Another challenge posed by such mergers is the future of local agency brands, particularly those that are not globally recognized. With the consolidation of brands, some local agencies might be absorbed into larger global brands, leading to the loss of long-established names,” said Bhasin. For instance, JWT, once a prominent brand in India, was merged globally into what became Wunderman Thompson, which diminished its visibility in the local market. Similar changes could happen with other local agencies, experts predict.

Moreover, the merger will likely result in conflicts between client bases, as both agency groups may have competing clients. Managing these conflicts and carefully handling client relationships will be key to ensuring the merger’s success.

Anita Nayyar highlighted another challenge: the impact of this merger on healthy competition within the industry. She warns that the increasing concentration of power among the top networks will leave less room for smaller players to survive, potentially stifling innovation and diversity in the marketplace. She said, “This consolidation makes it difficult for medium-sized and smaller agencies, as the top 20% of agencies already control 80% of the business. The remaining 20% of the business is divided among the other 80% of agencies, leaving them at a disadvantage.”

Impact on media negotiations

In terms of media negotiations, consolidation could affect the dynamics, said Nayyar. While the larger networks control volumes, it might not significantly impact negotiations immediately, she explained. The top four networks already operate in a monopolistic environment, which is unfavorable for media vendors and the supply side. However, due to their dominance, these large networks may drive down rates, which could negatively impact media vendors.

She added, “The supply side is already operating at low rates, so while negotiations might become more consolidated, it is unlikely that rates will drop drastically. There’s a base value at which supply happens, and agencies are already struggling to secure deals at significant discounts. As a result, the overall impact will be challenging for the industry.”

Bhasin also pointed out that while the increased scale and clout resulting from the merger will provide the combined entity with more negotiating power, India’s media market is relatively mature, with players like WPP already having significant influence. Pricing, in the end, is determined by supply and demand dynamics, and while larger scale can offer advantages, it won’t necessarily alter the basic economics of the market.

  • Published On Dec 11, 2024 at 01:15 AM IST

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2024-12-10 21:45:43

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