(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 $13 billion all-stock purchase of smaller rival Interpublic Group $(IPG)$ raises the question of what happens to European peers Publicis and WPP
. 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.
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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.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic: Publicis is now miles ahead of rivals in market cap terms
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(Editing by George Hay and Streisand Neto)
((For previous columns by the author, Reuters customers can click on Jennifer.Johnson@thomsonreuters.com))
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