Ever since Dentsu’s acquisition of Aegis Media in June 2013, the status of the integration effort in China has raised questions. Dentsu Aegis decidedly put off combination of the two entities in China until 2015.
In the meantime, Aegis Media and Dentsu continue working in parallel, managed by Phil Teeman, CEO of Aegis Media China, and Motohiro Yamagishi, CEO of Dentsu Network China. KF Lee has been named chairwoman of the Dentsu Aegis Network in China, overseeing both sides of the business.
According to Nick Waters, Asia-Pacific CEO for the merged entity, integration should be fully complete on 15 January 2015, at which point all businesses in Shanghai will be co-located in one property.
“From very early on, we took the view that execution in China would be relatively higher-risk than other countries,” Waters told Campaign Asia-Pacific. Aegis has had a relatively aggressive acquisition strategy and it meant that a number of agencies were still in the process of integration. “Do you then put them in another spin cycle or let the dust settle?” he asked rhetorically.
More significantly, geopolitical tensions between China and Japan created a degree of stress with clients, Waters said. China and Japan are currently at diplomatic loggerheads over their claims to a group of islands, known as the Senkaku in Japan and as the Diaoyu in China. Japan's acquisition of some of the islands from private Japanese owners a couple of years ago caused a boycott of Japanese-made goods by Chinese consumers. “There was pressure in the Dentsu camp," Waters said. "We didn’t want to compound human anxiety.”
Finally, the network also needed to consider changes in the management across both the agencies. The combined scale involves 4000 people across multiple cities in China. “That’s an awful lot to manage," he said. "So we decided to take a phased approach.” Functional areas like finance, human resources, IT and legal now operate as a single unit.
Waters did not comment on rumours about Moto Yamagishi becoming the network’s China CEO.
In other parts of the world, Waters claimed the company has made good progress. “Integrating two even-sized businesses across multiple countries with distinct cultures and disciplines looks like quite a challenge on paper," he said. "I’m pleasantly surprised about where we are now."
The Dentsu Aegis deal, announced in June 2012 and finalised in 2013, saw the Japanese advertising giant acquire all of Aegis’ stock for about US$4.9 billion. Since the deal closed, both groups ran as parallel businesses and as of January the agencies finally began operating the full range of assets under one P&L. The company had assured clients that Aegis Group would keep its name and brands. Waters focused on ensuring that no clients felt the need to move on.
Across the region, it has established management structures, single leadership, integrated finance platform, HR, legal, IT and a single mergers-and-acquisitions strategy.
Waters is proud that there has been no major client fallout nor senior talent leaving the group. “That’s a testament to the management team and strategy,” he said. In fact, in 2013, DAN managed to create $25 million in new revenue across the group. Furthermore, he says, post acqusition Dentsu's revenue outside Japan rose from 16 per cent to 42 per cent, transitioning it from a domestic powerhouse to an international player.
Waters said strategic vision is what sets DAN apart from POG. According to him, the proposed Publicis Omnicom Group merger was primarily about $500 million in cost savings. “That’s not very motivating,” he said. DAN, on the other hand, didn’t make a big fuss about cost synergies, but focused instead on specialisation of marketing services and horizontal integration. “It was always positioned to create value.”
All this is not to say the deal comes without its fair share of challenges. Merging established agencies takes considerable time and effort. “I think natural human tendency is to be slightly fearful of change,” Waters said, adding that he believes integration is an ongoing process that will last many years.