Havas Advertising's proposed acquisition of the Tempus Group and
the consolidation of Publicis' Optimedia and Zenith Media into one
agency offer further evidence that the global marketing communications
industry will likely be dominated by a handful of super networks in the
not too distant future.
While the recent rash of mergers and acquisitions in the sector has been
in the advertising side of the business - Publicis snaring Saatchi &
Saatchi and Interpublic Group (IPG) swallowing up True North - Havas,
Publicis and IPG have brought attention right back to where it
increasingly matters - media.
That it's all happening in a slowing economy isn't a surprise,
especially with advertisers looking to stretch budgets amid the
proverbial belt-tightening.
And size will obviously matter in delivering the kind of bargaining
clout that clients are looking for in their media agencies.
Which is probably what's driving IPG's quest to get bigger faster, with
its plan to set up Magna Global. The new entity is expected to drive
media time and space purchase negotiations with media owners to "new
levels of sophistication", to deliver what IPG believes will be the
greatest added-value benefits to clients.
It will act on behalf of all IPG media planning and buying operations -
including Universal McCann and Initiative Media - on an aggregated
basis. This means that at some stage in the future, Magna could be
looking after billings in excess of US$40 billion.
A week after IPG's announcement, Havas unveiled plans to purchase Tempus
Group, including media independent CIA, for £425 million (about
US$609 million) to create a new network called CIA Media
Planning, which will handle media spend of US$14.5 billion.
The deal has yet to be approved by shareholders, one of whom is the
rival WPP Group, which has a 22 per cent stake in Tempus. A decision is
likely by the end of the month.
On the same day that Havas unveiled its bid, Cordiant Communications and
Publicis announced that they had finally reached agreement on what to do
with Zenith. This comes a year after Publicis bought out Saatchi &
Saatchi, which has a 50 per cent stake in Zenith, from Cordiant. Under
the terms of the deal, Publicis' Optimedia would merge with Zenith to
form a new company called NewCo, with a combined media-buying volume of
US$20 billion.
Zenith's Asia-Pacific chief executive officer Antony Young described the
mega-media developments as "a further continuation of what we all expect
will lead to a big five or big three" group of global network
agencies.
However, Young and others said the continuing merger and acquisition
trend was not simply about gaining bargaining power over media operators
through size. Added to media clout, agencies have to deliver on a number
of other areas: research, and effective strategic and tactical
recommendations.
Two recent events have accelerated the M&A process: the sagging global
economy and the US$600 million Philips worldwide media review,
which was recently won by Carat after it spent the last two years
building up its presence in North America and Asia on top of Europe.
In a depressed economic climate, clients are increasingly looking for
discounts, or added value at least. For most, that means consolidating
with one agency. As MindShare Asia-Pacific CEO, Kelly Clark, puts it:
"Many marketers right now are looking for consolidation because it's
less expensive to work through a single point of contact. I think we'll
see more of that in the coming year."
With size being one of the critical success factors, MindShare plans to
continue "looking for selective acquisitions in key markets" as well as
"creative alliances" to maintain its leadership role in Asia-Pacific,
according to Clark.
The Philips review appears to have prodded the global communications
holding companies to speed up development of their media operations
because the Dutch consumer electronics giant made it clear it wanted a
"single point of contact". This required agencies to have a presence in
almost all of the major markets.
Havas' Media Planning Group, for example, is strong in Latin America and
the US, with some presence in Europe. Which makes the tie-up with
Tempus' CIA especially appealing because of CIA's Europe and
Asia-Pacific strengths. For the merged entity, this means instant global
coverage.
OMD Asia director of communication insights, Peter Allen, said such a
client strategy does have its potential downside. "A global AOR gives
the client consistency and one way of working. But that has to outweigh
the fact that in some markets the agency isn't going to be the
strongest."
