27 July 2013 - 12:08pm | posted by | 0 comments

Analysis: The impact possible Omnicom and Publicis merger could have on the marketing sector

Analysis: The impact possible Omnicom and Publicis merger could have on the marketing sectorAnalysis: The impact possible Omnicom and Publicis merger could have

Early reports that Omnicom and Publicis, two of the largest advertising group networks in the world, plan to merge have yet to be substantiated, but the possibility that they aim to do so in order to overtake WPP in size is not one to be discounted.

For their second quarters, Publicis reported a growth in revenue of 9.6 per cent while Omnicom saw its worldwide revenue rise by 2.4 per cent during a continued tough advertising period, so neither are looking to hit a panic button, meaning that there is no one obvious reason for such a move.

What is clear, and one such indication that such a deal might be possible, is that both CEOs Maurice Levy and John Wren have long sought successors, and that by merging the operations, the path would be clear for at least one to step aside.

“If ever there was a time when that hurdle of who will be chief executive might be surmountable it could be now. It could be that Levy or Wren see this as their final move to create the world’s largest group which overtakes WPP,” explained Keith Hunt, managing partner of marcomms and technology business advisement firm Results International, who does however admit his surprise on hearing of the deal being initiated in the first place.

Succession is certainly an issue that both face, and indeed Levy spoke about the issue with The Drum in June while attending the Cannes International Festival of Advertising, where he said: “There is always the fact that the population is ageing as people live longer, that the age of retirement is being postponed, so you can still function and it is quite a credible position for the board although a bit frustrating for the next wave who must wonder how long they must continue to wait while these old people stay.”

He has also set a firm deadline for his board, having issued the deadline of 31 December 2015 for when he plans to retire.

Hunt also sees the leaking of the deal as being very disruptive for both organisations, who have yet to make any form of statement at the time of writing. It’s likely that their great rivals such as WPP, IPG and Dentsu/Aegis may very well sense an opportunity to speak to some of each network’s major clients as a result of the leak, which according to Bloomberg came from one source described as “a person of knowledge” of the situation.

“The biggest impact is likely to be in media buying where they would be bigger and more powerful, but there’s a limit to how far you can push down the prices,” continues Hunt. “They are already massive and have huge amounts of clout in media buying, but could they really push the prices in media buying much lower? I’d be surprised.“

Should both parties agree the deal, they also face regulatory issues over whether or not the resulting entity would decrease competition as they became the largest network in the world.

Hunt doesn’t believe there would be much need for the company to merge any of its major agencies, which would include BBDO Worldwide, TBWA Worldwide, DDB Worldwide and PHD Worldwide on the Omnicom side and Starcom MediaVest, DigitasLBI, Saatchi & Saatchi, Leo Burnett, Fallon and BBH from the Publicis side, as the potential blue chip client conflicts created would be numerous.

However, despite the formation of the largest worldwide group, the impact upon the advertising landscape would not alter to any great degree, Hunt believes, with the quality of work and technological development likely to remain unchanged.

“The only area where it is likely to have a major impact would be the cost of media buying and so brands might save a little bit through media buyers and the shareholders from Omnicom and Publicis might benefit from slightly higher profits if they get the prices down.”

He adds that independent agencies may also benefit, with the likelihood that they will have one less network agency to face off against when pitching.

With no concrete statement or confirmation from either party that this deal is definitely on the cards, we are left to simply speculate about what may happen. There’s no doubt the share price for both will be affected, it only remains to be seen whether those will be negatively or positively the longest they wait to react. Watch this space.

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