Mergers & Acquisitions: A Survival Bet for Ad Firms - Analyst Blog

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As smaller ad firms faced the pinch to reduce costs during and after the Great Recession, they offered a lucrative option for takeover by larger firms. Moreover, ad firms received lesser contracts from companies, which reduced their ad budgets to sustain the macroeconomic challenges.

The advertising industry benefits from large economies of scale. The cost structure of the industry is more fixed, compared with other marketing businesses, which make it favorable for smaller companies to collaborate.

Let us look at some key merger & acquisitions that have taken place in the ad industry in the recent past:

Omnicom & Publicis Groupe

The biggest merger in the industry was probably the collaboration of Omnicom Group Inc. ( OMC ) and Publicis Groupe SA ( PUBGY ) in Jul 2013 to create Publicis Omnicom Group. The merger of the world's second- and third-ranked advertising companies created the world's biggest communications, advertising, marketing and digital services company with $22.7 billion in revenues.

The deal and the eventual formation of Publicis Omnicom Group toppled WPP Plc. ( WPPGY ) as the #1 advertising company. WPP has been a leader in the advertising world since 2008.

WPP & PennyWise

WPP's subsidiary, Ogilvy & Mather (O&M), inked a deal in Sep 2013, with PennyWise Solutions Pvt. Ltd. (PennyWise), an India-based digital technology and production company, to acquire a majority stake in the latter. The deal marks an important milestone in WPP's efforts to build its presence in the fast-growing markets and sectors.

Millennial Media & Jumptap

Joining the bandwagon, mobile advertising and data provider Millennial Media Inc. ( MM ) inked a definitive agreement in Aug 2013 to acquire privately-held mobile advertising platform Jumptap, Inc. The combined entity has a complimentary product portfolio that is likely to result in economies of scale in the fast-growing mobile ad market.

Dentsu & Aegis

In Mar 2013, Japanese advertising agency Dentsu Inc. acquired UK-based Aegis Group Plc to form one of the biggest global media and marketing networks. The strategic move was aimed to give competition to behemoths like WPP and Omnicom.

The Possible Upcoming Targets

Apart form the cost-saving benefits, the growing influence of digital media in marketingis also believed to have played a key role in the recent mergers and acquisitions in the ad industry. It is believed that these mergers will lead to greater scale and efficiency in digital marketing.

The mergers are expected to enable the ad firms to collate their resources to work more effectively with major Internet and tech players like Amazon.com Inc. ( AMZN ), Google Inc. ( GOOG ) and Facebook, Inc. ( FB ) among others.

Moreover, it is also believed that the consolidation will increase the bargaining power of the ad firms while negotiating with media companies and publishers, who previously had an upper hand in bargaining. The proposed Publicis Omnicom Group will reportedly control 40% of the ad spending in the world.

The Omnicom-Publics merger has probably triggered the probability of more consolidations in the industry going forward. The mergers have resulted in fewer players in the advertising industry.

Moving forward, WPP may also strive to regain its leading position by acquiring some other firms in the industry. Analysts predict that The Interpublic Group of Companies, Inc . ( IPG ), MDC Partners Inc. ( MDCA ) and Havas ( HAVSF ) may choose to sell their businesses. 

The Interpublic Group of Companies, Inc . : N.Y.-based Interpublicis the third largest adverting company in the world. It offers a range of advertising and marketing communication services along with public relations, meeting and event production, sports and entertainment marketing, and corporate and brand identity in more than 100 countries.The stock is trading at a forward P/E of 20.49x and has a long-term earnings expectation of 9.7%.  

MDC Partners Inc.: Headquartered in Canada, MDCA provides marketing communications including advertising and media, interactive marketing, direct marketing, public relations, corporate communications, market research and development across the U.S, U.K. and Canada. The stock has a long-term earnings expectation of 10.50%.

Havas: France-based Havas offers a broad range of marketing services including brand strategy and consulting services, and advertising and media expertise services. The company has operations spread across the globe including Europe, North America, Asia-Pacific, Africa and Latin America.



AMAZON.COM INC (AMZN): Free Stock Analysis Report

FACEBOOK INC-A (FB): Free Stock Analysis Report

GOOGLE INC-CL A (GOOG): Free Stock Analysis Report

INTERPUBLIC GRP (IPG): Free Stock Analysis Report

MDC PTNRS INC (MDCA): Free Stock Analysis Report

MILLENNIAL MEDA (MM): Free Stock Analysis Report

OMNICOM GRP (OMC): Free Stock Analysis Report

PUBLICIS GP-ADR (PUBGY): Get Free Report

WPP PLC (WPPGY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AMZN , FB , GOOG , IPG , MDCA

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