Adland’s main post-M&A tussle is for second place

Interpublic of Companies

19/12/2024 14:13

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Jennifer Johnson
       LONDON, Dec 19 (Reuters Breakingviews) - Adland’s big
four is set to become a big three. U.S. advertising giant
Omnicom’s  OMC.N  $13 billion all-stock purchase of smaller
rival Interpublic Group (IPG)  IPG.N  raises the question of
what happens to European peers Publicis  PUBP.PA  and WPP
 WPP.L .  The spotlight will fall more uncomfortably on Mark
Read, chief executive of the latter.
    Back in 2015 WPP made $18 billion of revenue, the most of
the big four, and its $30-billion-plus market capitalisation was
also way ahead of the pack. After a period of retrenchment
amongst its big tech clients, things look different. The $14
billion of net revenue WPP is set to make in 2025, per analyst
estimates compiled by Visible Alpha, lags Publicis’ $15 billion.
Meanwhile, Omnicom’s and IPG’s combined top line would exceed
$25 billion.
    As it stands, Publicis, led by Arthur Sadoun, looks hard to
dislodge from pole position. With $2.6 billion in operating
income in 2023, it was the most profitable of the big four – a
trend Visible Alpha-compiled analysts see continuing until the
end of the decade. At $28 billion, its market capitalisation is
miles ahead of WPP’s $12 billion, and its revenue has been
growing much faster.
    Sadoun’s success is partly down to smart M&A: in 2019
Publicis acquired Epsilon, known for its expertise in working
with data it collects directly from customers. That deal made it
easier to win clients by promising them highly targeted
marketing campaigns. The company has credited the bolt-on with
helping it win new business and raise its revenue forecasts
twice this year against a tough backdrop for ad spending. By
contrast WPP was late to the big data party: it only launched
its Choreograph offering in 2021.
    What happens next hinges on artificial intelligence. The big
four are locked in an arms race to develop AI assets that
promise yet more effective insights into consumers. Publicis is
to invest 300 million euros in AI over three years. WPP is
forking out even more: 250 million pounds for each of the next
three years. Given Omnicom’s pounce on IPG could create
synergies with a present value nearing $6 billion, it may be the
biggest investor of the lot.
    That said, Omnicom-IPG’s success isn’t assured. Since the
merger was announced on Dec. 9 the groups’ combined value is off
by around 10%. Even if bulking up enables greater investment,
the groups still have to get antitrust approval and integrate
cultures. The risk is staff and clients jump ship along the way.
    Given they could go to WPP, Read may yet be a beneficiary of
sector consolidation. But with Publicis still looking like the
one to beat, his AI gambit will need to succeed extravagantly
for him to be in contention for anything better than second
place.
    Follow @jenjohn_ on X
    
    CONTEXT NEWS
    On Dec. 9, Omnicom announced it would buy fellow U.S.
advertising agency Interpublic in a share-based transaction. The
deal will see the acquiree’s investors offered 0.344 Omnicom
shares for each of their Interpublic shares.
    The deal is expected to generate $750 million in annual cost
synergies, according to the companies. It represents the first
effort to merge two advertising giants since the failed tie-up
of Omnicom and Publicis in 2013.

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Graphic: Publicis is now miles ahead of rivals in market cap
terms    https://reut.rs/4iMhrkq
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 (Editing by George Hay and Streisand Neto)
 ((For previous columns by the author, Reuters customers can
click on  JOHNSON/ 
Jennifer.Johnson@thomsonreuters.com))