Industries consolidate for all sorts of reasons. In bad times, the healthy snap up the crippled at bargain prices. And in good times (and with Omnicom’s stock price tripling in the past four years or so, these are certainly good times, with Publicis trading near all-time highs as well), the strong often consolidate to distance themselves from the rest of the pack. When the smoke clears, there ends up in these industries a Big Five, Four, Three or, ultimately, Two (antimonopoly laws make it difficult to completely dominate a market not created by the company in question – one reason Google tends to operate in markets they’ve created or where they’ve made huge innovations, rather than simply buying up large competitors).
This weekend, the news hit that the second (Omnicom) and third (Publicis) largest advertising holding companies were merging to leapfrog the current top dog, WPP Group, in both revenues and market cap. The new entity is officially called Publicis Omnicom Group, but before the awkward acronym POG gets into your head, we may have to get ready to add yet a third name in short order as consolidation heats up (adding Interpublic would make it the Hawaiian-themed POI, while larding on Dentsu could create a digital-sounding POD).
My crystal ball is a little cloudy on this merger, but here are few easy predictions:
Consolidation will continue, and there will be a continuing race to be first. WPP has already pretty much acknowledged, by virtue of Sir Martin Sorrell’s comments before the ink was dry on the announcement, that it’s now his move. The CEO’s at Interpublic and Dentsu should be expecting their phones to ring shortly. In an industry with thousands of companies and hundreds of mid-sized companies, the top five holding companies, pre-merger, are already responsible for roughly half of the industry’s total revenues. This is a model that has served the industry giants in the accounting world well.
Innovation initiatives will be consolidated, which typically means they will be slowed down and many of the brightest minds, if not promoted, will see this as a sign to go elsewhere. I’m not going to list all of the innovation initiatives, be they internal labs, platform skunkworks or freshly acquired software companies, who would fit in this category, but the world has shifted more under their feet than the typical ad or PR exec who’s mainly worried about headcount due to new conflicts.
When the dust clears, there will be fewer big agency acquirers available to buy companies (both agencies and technology companies), and a lower number of possible buyers tends to depress prices. On the other hand, the larger treasure troves of the top combined entities mean that they can now compete with larger tech companies for certain acquisitions that might have once been out of their reach.
Many industry consolidations create a new wave of innovators as they leave the consolidated companies. In highly mature industries, like accounting and law, this is a tougher task to take on entrenched giants, particularly where stability and history is prized over innovation or efficiency. But since the worlds of advertising and PR, and all of the affiliated marketing disciplines now rolled up into the current conglomerates, are still in a rapid state of change, new innovators could come up and rise rapidly in several areas (most likely the reason why the highest flying of the first wave of digital agencies got picked off early at high prices). Just as Google rose up from obscurity during a time in the late 1990s that most people assumed that the search engine space was fully consolidated with the big brands of Altavista, Infoseek and Lycos, the next wave of digital marketing innovation could be hugely disruptive and capable of leading with its own market dynamics, rather than simply being sucked up into the vacuum cleaner of a consolidated agency universe.