The Q1 2012 earnings season begins with a majority of the big ad agency holding companies as potential acquisition targets—and the three biggest networks enjoying the plight of their smaller brethren.There is always chatter about whether one or more of the major networks will get bought or merge with another, especially since the top three—WPP, Publicis and Omnicom—have pulled so far ahead of the others in size.
I’m not saying a deal is imminent. Just that it’s strange that the industry—which has a history of aggressively acquiring and consolidating within itself—has entered a semi-permanent period in which a majority of the participants are potential M&A targets of the minority.
In the last year, the four smaller Western networks—Interpublic, MDC Partners, Aegis and Havas—have all been named as either potential acquisition targets (or in need of exploring their “strategic options,” as Wall Street M&A people like to say).
And that’s not counting surprise attacks from Eastern agency networks such as Dentsu, which came into a cash windfall earlier this year and may want to invest it in the U.S., where post-recession ad revenues are growing like spring daffodils.
Here’s a look at each of the major agency networks, and the circumstantial evidence that they may either acquire or be acquired.
WPP, which owns venerable agency brands such as Ogilvy, Y&R, JWT and the research giant Kantar, is the largest of the advertising companies by revenues.
CEO Martin Sorrell is an aggressive acquirer of new agencies and loves to make triumphant, category-transforming deals. He has occasionally suggested that his arch-rival, Publicis, ought to acquire Interpublic, but it's not clear whether he really thinks that's a good idea or if he just wants to see his two immediate rivals hobbled by merger turmoil.
One thing is sure: If either of the other Big 3 networks makes a deal to create a network bigger than WPP, Sorrell will be unlikely to sit idly by.
There's nothing fundamentally wrong with the second biggest network, but Omnicom (which owns agencies such as BBDO, TBWA and DDB) has always suffered from the impression that it lacks the equivalent digital assets that WPP and Publicis have acquired in the last decade.
In 2011, for instance, CEO John Wren ordered all his staff to finally become au fait with Facebook and Google. Wren has been gunshy of digital acquisitions since a disastrous foray into the sector in the late 1990s.
Fast forward to 2012, and London and New York are littered with successful new mobile and social media agencies like TBG Digital, Buddy Media and Millennial Media. Why not roll a few of them up?
The big corporate strategy news at Publicis (which owns Leo Burnett, Saatchi & Saatchi and Digitas) is who will succeed longtime CEO Maurice Levy? He is set to retire under controversial circumstances due to the size of his compensation package. There's a great deal of speculation as to his successor.
Whoever succeeds him faces the unenviable task of differentiating his or her reign from that of Levy, and keeping pace with WPP and Omnicom. One potential solution: A dramatic takeout of another company.
Interpublic is having a rocky recovery, with two of its biggest agencies, McCann Erickson and DraftFCB, suffering client defections from Nescafe and SC Johnson. The lost billings were in the hundreds of millions of dollars.
Perception is reality in advertising and CEO Michael Roth knows it doesn't take much before a trickle becomes a waterfall. Many an agency has blinked out of existence after talent and clients decided that the stink of failure was upon them. Wells Rich Greene, for instance.
A transaction would alter perceptions and, perhaps, momentum at the network. MDC Partners is an obvious target.
MDC Partners (which owns Doner, Crispin Porter + Bogusky and Kirshenbaum Bond Senecal + Partners) has twice been cited by Deutsche Bank as a potential acquisition target. It's much smaller than WPP, Omnicom or Interpublic but is growing fast.
There's no fundamental reason that the U.S. market needs three large players and one smaller one. Dentsu could buy it with cash it earned from a sale of a Publicis stake.
Also. CEO Miles Nadal gets a $15 million stock windfall if he sells out.
French investor Vincent Bollore's 26.5 per cent stake in the company has been on market since March last year, and that has observers wondering whether it might presage the sale of the entire company.
Aegis has an image problem in the West--it specialises in media-buying agencies like Carat, which is the non-sexy side of the business. According to The Guardian:
Altium analyst Roddy Davidson said: 'Is Aegis more likely to be taken out this year than it was last year? I would say yes. And there is decent momentum on both sides of the business at the moment.'
Havas CEO David Jones recently made the bonkers decision to abandon the brand name of his biggest and best-known agency chain, Euro RSCG. From September onward it'll be plain old Havas Worldwide, even though the Havas brand is less well-known in the U.S. That kind of deckchair rearranging is a sure sign of management that's unhappy with its current direction.
Havas is in the same boat as Aegis because chairman Vincent Bollore owns a large minority chunk of both companies. Here's the big picture, according to Euro ad blogger Stephen Foster:
Both Havas and Aegis are minnows in comparison to WPP, whose revenues are nearly eight times bigger, Omnicom, Interpublic and Publicis Groupe.
Whichever way you look at it £2bn or more for Aegis looks well beyond Havas' grasp, making Havas itself a more likely takeover victim than predator.
That, of course, depends on chairman Bollore (who stepped down as CEO in favour of Jones earlier this year). But Bollore will have noted that there is no virtually no chance of Havas ever catching up with his bigger rivals through organic growth and he may be tempted to cash in so he can concentrate on his other ventures, which include providing Paris with electric cars.
OMC: April 17
PUB: April 19
IPG: April 26
WPP: April 27
MDC: no date yet
Havas: no date yet
Aegis: No date yet.
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