Omnicom and IPG staff fret for their future after $13bn mega merger

Omnicom and IPG sent shockwaves through the advertising sector when they announced a $13bn merger on Monday. Ali Lyon looks at what the deal means for the firms’ agencies, staff and the ad industry as a whole.

Advertising, according to Mad Men’s Don Draper, is based on one thing: happiness.

Happiness, the protagonist of the HBO hit series says, “is the smell of a new car”. It’s “a billboard on the side of a road that screams with reassurance that whatever you’re doing is OK”. It’s “freedom from fear”.

The sector has come a long way from the flared suits, physical flip charts and outdated gender roles that punctuate the popular drama set in high-octane 1960s New York.

But the top brass at two advertising giants of today – Omnicom and Interpublic Group (IPG) – will be working in overdrive currently to ensure their own staff retain the “freedom of fear” to which Draper alludes.

The pair of holding groups revealed on Monday a deal that threatens to uproot and reshape much of the contemporary advertising industry. The all-share $13bn mega-merger will replace IPG shareholders’ stock with Omnicom shares at a 21.5 per cent premium, in a tie up set to make the combined company the largest advertising, media and public relations group in the world.

The news set Adland ablaze with speculation on what the deal said about the state of the world’s $1 trillion (£784bn) ad sector, as well as its ramifications for the dozens of agencies sewed up in the sale.

It also sent jitters through the tens of thousands of UK staff that the New York-listed holding companies employ, many of whom read the press release trumpeting “annual cost synergies of $750m” and thought one thing.

A hunt for ‘efficiencies’ at the new Omnicom

“There are some worries, given recent redundancies, that we’re going to see yet more rounds of restructuring,” a London-based staffer at an Omnicom agency told City AM.

“It never ends well,” a less equivocal IPG executive said on the morning of the announcement. “Lots of staff will be culled.”

Jim Donaldson, who did a nine-year stint as UK chief executive of Omnicom agency Fleishmanhillard (FH) before setting up the Jim Donaldson Partnership, believes their concerns are justified.

“They [IPG and Omnicom] talk about $750m of efficiency, and that’s a large amount of money,” he tells City AM. “That can’t just be on real estate and the like. It has to include people, and I do imagine there will be a large amount of job losses.”

For Donaldson, who before his time at FH also ran the corporate communications function in Europe for IPG’s Weber Shandwick, it’s not a matter of if the axe falls, but where.

“The question I would have, is are [those cuts] going to come from back office functions, or are they going to be at the coal face of client-facing people at the ad agencies and digital agencies, and how important is the UK in that.”

Those worries will be all the more profound given the two companies’ similar structures. Owning several agencies with overlapping – or sometimes even entirely identical – specialisms is in a holding group’s nature.

In Omnicom’s case, straddling the floors of its Southwark UK headquarters are BBDO, TBWA and DDB, all three of whom, on top of boasting unwieldy acronyms as names, regularly find themselves fishing in the same pond for talent and clients. Meanwhile IPG’s advertising armoury alone comprises McCann, Mullenlowe, and Avrett Free Ginsberg.

Six advertising agencies – all doing similar roles in an enlargened portfolio – feels ripe for, as Omnicom and IPG phrased it it, some “cost synergies”.

But finding those efficiencies will be harder than many think, according to James Acheson-Gray, a PR veteran who helped run Accordience-owned Grayling before becoming founding partner at boutique advisory Apella, and the cultural integration it will entail will also need to be handled with care.

“Integrating businesses is a massively time-consuming endeavour,” he says. “You always go into it thinking that we’re going to have huge synergies and they’re often not quite as big as you might expect.”

Lay-off concerns will be all the more profound given the two firms’ similar structures.

If the accounts of various staff at both holding companies over the past few days are anything to go by, then the early signs are that there is room for improvement on the care and empathy front.

“It’s caught a lot of senior people off guard,” says one director at an IPG agency. “The challenge will be what it means for staff and clients at a time when things aren’t exactly calm.”

City AM understands that at least one agency had to hastily arrange calls with Omnicom-wide clients to talk them through what the changes might mean for the day-to-day running of their accounts.

And Omnicom agency staff also say they had to wait until late into Monday evening – several hours after the merger was announced publicly – for any official communication from Omnicom leadership to make its way into their inboxes.

When that email did come – it made no mention of the so-called efficiencies mentioned in the announcement to US markets. Rather, it spoke only of the “core values” and “complementary cultures” that Omnicom agencies shared with their IPG counterparts, asking staff to “join [the leadership] in celebrating this incredible moment”.

A merger with sound rationale

Notwithstanding the likelihood of human collateral damage as the new incarnation of Omnicom girds its loins for the future, many observers do see the rationale behind the move. The advertising and media industry have both been subject to a decade of major upheaval, which has only accelerated with the ascendancy of artificial intelligence.

Not only have the media channels on which advertising and public relations firms rely changed enormously, but the priorities and tastes of their clients have shifted too.

According to the WPP-owned media investment firm GroupM, over half of the advertising industry’s $1 trillion revenue is now spent with tech giants like Alphabet, Amazon and China’s Bytedance, many of whom, even a decade ago, barely even ran an advertising function, if they existed at all.

A source at IPG readily admits that the advertising side of IPG has been “slow to adapt to the tech advancements” in its sector, “even before AI acted like a grenade”.

The upending of the entire sector’s modus operandi is plain to see in the two firms’ share prices, and has presented itself through the pay freezes and redundancy rounds both firms have instigated at various times in the two years.

The IPG stock price has fallen by over 20 per cent since the pandemic triggered an advertising spending spree. And since 2016 – a period in which the S&P 500 has nearly tripled in value – Omnicom shares are up just 10 per cent.

The merger will free up more capital to invest in AI and other technological elements of the ad industry.

That stagnation, evident in the two firms’ revenue and profit as well as their share price, combined with the technological disruption looming on the horizon, means both Donaldson and Acheson-Gray can understand the two groups’ rationale for a tie-up.

“The legacy ad groups had to do something to change how their businesses are perceived by the market,” Donaldson says. “And what you’re doing here, is bringing together two businesses that will provide you with the ability to invest more in AI and all of the new technologically-related elements of the ad industry… that has been tricky for some of these ad agencies to do.”

Before any of those long-term aspirations can be achieved, though, IPG and Omnicom leadership will need to make a series of mundane, ugly but much more pressing decisions about how to manage what will be a testing integration involving dozens of companies.

Donaldson believes that the new Omnicom will be tempted to offload several big name agencies of individual agencies, and in so doing shore up its bottom line while also avoiding some of the aforementioned cultural frictions.

For Acheson-Gray, its success will be wholly contingent on its execution. “In a people business – one that relies on creativity, and ideas, and sparkiness – these mergers are all about the culture and the staff feeling assured,” he says.

After two years characterised by stagnant pay and lay-offs, this job of reassuring London staff will be a long, complex one.

But – as the sharp-suited, unstintingly articulate Don Draper would undoubtedly say – if anyone can assuage hundreds of thousands of jittery staff, and persuade them, in his words, to be “free of fear”, it would be the brightest minds in the advertising industry.