Volume 188:Omnintercompublic.

Omnintercompublic.

tl;dr: It will be exactly as chaotic as it sounds.

So, the great Holdco shakeout is finally upon us. After years of failed agency mergers, they decided, “screw it," let’s just merge ourselves instead.

If you’ve been living under a rock or just haven’t noticed, I’m referencing Omnicom's proposed acquisition of Interpublic.

To understand why, let’s look backward:

In the 1980s, some very smart ad execs saw a financial arbitrage opportunity in the creative industries. Specifically, they saw that a dollar of public revenue is worth more than a dollar of private revenue, which meant buying privately held agencies and then merging them into a public ownership vehicle represented a surefire means of realizing this previously hidden value in the form of stock price growth.

This model was so successful that it drove significant growth among a handful of players, each becoming an acquisition monster. Acquiring hundreds of large and small agencies and creating an entrepreneurial flywheel as a side effect—creative entrepreneur starts new agency business, grows it to a certain scale, sells to advertising Holdco, works through an earnout period, leaves, starts new agency business. Rinse/Repeat.

By roughly 2010, it became clear that this arbitrage growth model had largely played itself out. Technology was taking a larger and larger share of client budgets; advertising was shifting wholesale toward what we now recognize as digital programmatic; the big-tech walled gardens increasingly controlled consumer eyeballs; and it became glaringly clear that a significant level of underperformance was now baked into agency portfolios assembled to deliver a financial contribution to short term stock price growth, rather than any strategic complementarity, and certainly not through anything approaching a vision.

After the arbitrage model collapsed between 2010 and 2024, the Holdco’s went largely strategy-free. (Accenture, among others, now finds itself in a much better financial position to snap up interesting creative businesses and realize the instant financial benefits of converting private revenues into public).

Because they had no strategy, the default was to follow the path of least resistance in maintaining stock price: squeeze the assets and take out costs. So, for about 15 years, they’ve merged back office services, consolidated real estate leases, created new multi-agency governance structures, pressured agency CEOs greatly to deliver a return, and occasionally merged and sold agency businesses when that didn't work.

In other words, the agencies owned by Holdcos have become increasingly terrible places to work.

Worse, taking a maintenance approach in an industry undergoing a rapid, technologically driven transformation doesn’t exactly position you for innovation success. Oops.

To demonstrate how value-destructive having no strategy has been, WPP went from a $32bn valuation in 2015 to just $12bn today and has little or no prospects for future enhancement. While merging agencies has been its forte recently, none of this consolidation has moved the needle regarding sales growth, margin enhancement, or stock performance, which is currently in the toilet.

Now, layer the implications of AI over the above, and we see an even starker future ahead. Holdco-owned creative agencies already underperform financially, and the likelihood of AI disrupting that business is significant. To quote Jeff Bezos, tech firms now look at creative agencies and go, “Your margin, my opportunity.” Expand this across the piece, and what you’re left with is the following: Holdco’s made up of large, financially underperforming creative agencies, small sub-scale, and margin-constrained offerings like branding that will never grow enough to replace lost creative agency revenue, and data-oriented media buying and planning, which increasingly looks like the sole opportunity for growth and margin at scale.

With that in mind, one Holdco stands alone, Publicis. Publicis stands alone because it has a strategy; interestingly, it’s still an arbitrage strategy. However, unlike the days when the arbitrage opportunity was the difference between public and privately held revenue valuation, Publicis today pursues an arbitrage opportunity that exists between the price media is offered to them and the price a client will pay. (If you’ve heard about principal media buying but didn’t know what it is, it’s an arbitrage opportunity, where through a combination of the scale it can buy at and the insights gained via proprietary data assets, Publicis buys media for less than it then sells it to clients for).

The success of this strategy has had a profound impact on all of the other Holdcos. Where, in the past, they’d loudly discuss an ambition to become advisors to the C-suite and compete more effectively with the Accentures of the world, Publicis showed that there’s a different path toward profit and growth that is much closer to the Holdco business of the past—media arbitrage.

So, why is Omnicom buying Interpublic? First, it’s not about costs. Well, not solely. They’ve told the stock market they envisage taking out circa $750m in efficiency savings. That’s a lot of money, but doing a little back-of-cigarette packet math suggests that it’ll only contribute around $4.5bn or so in stock value, and it’s a bad deal to pay $12.5bn for something that’s only going to realize $4.5bn.

This commentator thinks the goal is to become the next Applovin, which may be true at the extreme, but in reality, this feels like Omnicom is following a defensive “we can be like Publicis too” strategy. Which, on paper, might not be the dumbest idea anyone ever had. First, we know that it works because both clients and the stock market are rewarding Publicis for it, and being bigger while having the same strategy as the innovation leader might bring investor advantages because there are investors who reflexively buy the scale leader in any category.

The challenges, however, are not insignificant. First, Publicis via Sapient and Epsilon just flat-out has better capabilities to pursue this strategy than the newly merged Omnipublic/Intercom will have. Second, Publicis is already in the market and has first-mover advantages. Third, Publicis already has a much more centralized structure, while both Omnicom and Interpublic have consciously kept to a highly decentralized model. This will be a real challenge as it seeks to deliver greater cross-silo innovation.

Overall, this feels like the opening salvo in what will likely be a major reshuffling of the agency/Holdco chess pieces. Low-growth, people-intensive, and underperforming areas will likely be deprecated, cut, or sold as they pursue an integrated data and media offering with more pay-for-performance elements delivered technologically at higher margins. As a result, I’d be shocked if there weren’t more private equity deals for creative agencies coming, as well as a strategic paring back of lower growth parts of the mix. For example, with the addition of Interpublic, Omnicom will now own a significant part of the branding category, adding Futurebrand to a portfolio that already includes Interbrand, Siegel+Gale, Wolff Olins, and Sterling Brands. Will they leave them alone under the existing “Brand Consulting Group” umbrella? Will they merge or consolidate them? Or will they sell one or more? If the strategy is to offer a more integrated media-oriented model, these will look increasingly like non-core activities since they service a small market with low growth potential and constrained margins due to high staff costs. (BTW. This is probably why branding is mentioned last in the press release. It’s likely the first thing they’ll jettison if the model works as planned).

Anyway, I feel for anyone in the cement mixer. It’s going to be chaotic. Nobody wants to be a part of the $750m worth of cost-out “synergies,” especially since these businesses have been diligently stripping out the easy costs for the past 15 years already. And if you’re not on the chopping block, that’s no reprieve, as you’ll now be under huge pressure to make the new cross-silo, data, tech, and media model work.

However, if I put the upcoming chaos aside, from an observer’s viewpoint, this is a great example of what happens when categories transform: aggressive and smart new entrants (Google, Meta) concentrate value among themselves, while the incumbents are left so flat-footed that they go strategy-free for a decade and a half.

While Omnicom and Interpublic's value has largely remained unchanged over the past decade at around a combined $30bn, Google is now worth $2.4trn, and Meta, $1.6trn…While Omnicom and Interpublic's value has largely remained unchanged over the past decade at around a combined $30bn, Google is now worth $2.4trn, and Meta, $1.6trn…