MW Omnicom and AssuredPartners mergers highlight need for 'scale' as dealmakers get busy

By Steve Gelsi

The two mergers reflect a mega-rollup strategy of industry consolidation

Two large merger deals worth a combined $26.7 billion were announced Monday, with bankers having recently flagged the need for big companies to get even bigger in order to compete in the marketplace.

Two of the country's largest advertising and marketing companies, Omnicom Group Inc. $(OMC)$ and Interpublic Group of Cos. $(IPG)$, announced plans to combine in an all-stock acquisition that values Interpublic at about $13.2 billion.

Interpublic's stock was up 10.4% on Monday, while Omnicom's stock fell 6.4%.

In the other big deal for the day, insurance brokerage Arthur J. Gallagher & Co. $(AJG)$ said it would pay $13.45 billion for AssuredPartners, which is backed by Chicago-based private equity firm GTCR.

The two large deals represent big roll-up strategies in the advertising and insurance businesses, respectively.

Achieving scale was a core element of the formation of AssuredPartners in 2011 with the company's current executive chair, Jim Henderson, according to Dave Donnini, managing director of GTCR.

"Having scale is central to a broker's ability to access the most relevant solutions from the industry's largest carriers and to find the best options for customers by leveraging sophisticated analytic resources that come with size," Donnini told MarketWatch in an email. "Scaling the business also allowed Assured to build centers of excellence across ten different industry end markets."

The two large mergers come as dealmakers such as $Citigroup Inc(C-N)$. (C) have talked about the common need to bulk up to achieve efficiency and to pool capital in order to invest in technology.

"There's a lot of pent-up demand," Chief Executive Jane Fraser said in an interview with Bloomberg TV last month.

Also read: Merger activity is down 40% from its peak. Citigroup CEO Jane Fraser sees a 'big unlock' ahead.

The combined Omnicom and Interpublic will have $25.6 billion in revenue and will face off against other behemoths in the advertising business, such as WPP $(WPP)$.

"We are creating a uniquely comprehensive portfolio of services that will make us the most powerful marketing and sales partner in a world that's changing at speed," Interpublic Chief Executive Philippe Krakowsky said in a prepared statement.

Omnicom agreed to pay 0.344 shares of its stock for every share of Interpublic.

Based on Omnicom's closing price of $103.42 a share on Friday, the deal values Interpublic at $35.58 a share, which is a premium of $6.32 a share, or 21.6% over its closing price of $29.26 a share on Friday.

With 371.1 million shares of Interpublic outstanding, the deal values Interpublic at about $13.2 billion.

Meanwhile, GTCR said the sale of AssuredPartners amounts to the "largest sale of a U.S. insurance broker to a strategic acquirer in the history of the industry."

GTCR created AssuredPartners about 13 years ago in an alliance with management with the goal of building a leading middle-market broker. At last check, AssuredPartners was the 11th largest insurance broker in the U.S.

GTCR sold a stake in AssuredPartners to private-equity firm Apax Partners in 2015 and then bought back Apax's stake in 2019.

Aaron Cohen, a managing director at GTCR, said the firm chose to sell AssuredPartners rather than exiting through an initial public offering.

"The opportunity for Assured to partner with a world class organization like Gallagher was an easy one," Cohen said in an email. "Their reputation and standard for customer excellence aligns well with Assured's objectives."

-Steve Gelsi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

December 09, 2024 10:41 ET (15:41 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.