Last summer, Omnicom Group and Publicis Groupe set out to form the largest ad holding company the world has ever seen. The proposed merger was supposed to be finalized by the end of 2013, but various tax and regulatory issues, as well as conflicts over leadership, drug the process out well into 2014. Last week, the two mutually agreed to call off the deal after spending $35 billion to get that far.
The failed deal will serve as a case study for marketers for some time to come. Here are three big lessons to be learned from the now-canceled deal.
1. Size isn’t always an advantage
As previously mentioned, Publicis-Omnicom would have created the world’s largest ad holding company. While the idea of having that kind of a mega-company was appealing to both organizations, they soon figured out being bigger isn't always better.
One of the main reasons the agencies cited for pursuing the merger was to bulk up on Big Data to compete with tech giants like IBM and Google. The main hole in that strategy is thinking that combining two huge companies would instantly create scale, but that’s not necessarily the case. What tech companies have figured out that agencies may still be struggling with is that having more employees and agencies/departments doesn’t equal bigger profits. For example, WPP—currently the biggest ad holding company in the world—has 175,000 employees and a market cap of $29 billion. Google employs 47,000 people and has a market cap of $353 billion. That may seem like comparing apples to oranges, but Google is specifically a company Omnicom and Publicis hoped to compete with.
2. Uncertainty breeds turmoil
Amid the drawn-out process of the merger, Omnicom and Publicis both experienced problems outside of their of tax and leadership conflicts. Because a deal of this type or size had never been attempted, it left a lot of uncertainty brewing in the minds of clients and employees.
When that uncertainty started becoming clear to outsiders, other agencies started preying on weaknesses, poaching talent from the two holding companies by offering a more certain future. Clients started bailing, as well—including such high-profile brands as Microsoft, Vodafone, and Danone. The more employees and clients that left, the worse the uncertainty became and the more tumultuous the deal became.
3. Clients should always be No. 1
It seems that ghe merger was ultimately more about Omnicom and Publicis gaining some perceived power through size and less about finding the best way to service clients. For starters, the merger itself—as mentioned above—caused the two holding companies to lose several high-profile clients because of uncertainty.
Had the merger been successful, Omnicom and Publicis would have had to deal with some serious conflicts of client interest. Merging the two holding companies would have put several rival brands under the same umbrella. Think Coca-Cola and Pepsi. McDonald’s and Yum Brands. Google and Microsoft. Mars and Nestle. These are some of the biggest brand rivalries in the world, and the merger would have seen them represented by agencies under the same giant umbrella. This could send the message that clients’ needs certainly weren’t top of mind.
Even though the merger didn’t go through, the plan already contributed to Microsoft jumping ship. It’s probably safe to say some of the other brands suddenly finding themselves sleeping with the enemy would have bailed as well.