By Megan Graham, Katie Deighton and Patrick Coffee

As Omnicom Group moves forward with its acquisition of Interpublic Group, marketing executives say clients of the two advertising holding companies might experience turbulence, but they could also see some benefits from increased scale.

Omnicom and Interpublic executives said their combination, which values IPG at more than $13 billion and creates a new leader in the industry, should give their clients a "comprehensive understanding of consumer behaviors and transactions," and the resources to do better marketing.

Although the two companies work for some big-spending rivals -- IPG counts T-Mobile as a client, for example, while Omnicom works with competing telecom AT&T -- most marketing executives aren't particularly concerned about conflicts.

Still, the merger also will undoubtedly prompt some headaches as the companies combine.

Chief marketing officers' first priority is ensuring agency executives are still focused on their business, rather than "spending 30 hours a week on integration meetings," said Linda Boff, chief executive of marketing agency Said Differently and previously the longtime head of marketing for General Electric.

"Something on this scale will be a huge distraction," said Shiv Singh, a former chief marketing officer of mortgage broker LendingTree and a veteran of marketing posts at companies including Expedia, Visa and PepsiCo. "Every CMO will worry about getting the attention they deserve."

An Omnicom spokeswoman said the company has been careful to avoid disruption or distractions at its agencies and client teams. Only a small team of corporate employees is involved in the transaction while agency leaders remain focused on their clients, she said.

Keeping tabs on talent

The combined company, which will keep the Omnicom name, is likely to choose a handful of agencies to throw the bulk of resources behind, similar to the consolidation that has been going on for years inside holding companies.

"I think what will happen is this new merged entity will choose a few jewels of the crown, and that's where all the energy and focus and mojo and talent will be shifted to, and then they'll use the others as conflict shops or specialty shops," said Ken Robinson, co-founder and managing partner of agency search consulting firm Ark Advisors.

Clients worried about distractions or the elimination of their agency brands might consider working with other holding companies as the combined Omnicom's kinks are worked out. That could mean business goes to other ad holding companies like Publicis Groupe or WPP, or to smaller independent players, some industry leaders said.

"The winners in this kind of transaction could end up being the newco's biggest rivals who would use the deal to try to steal clients and talent, " MoffettNathanson research analysts said in a note Sunday.

Omnicom Chairman and Chief Executive John Wren argued that clients will want to stick around to see through the merger, in part because conducting a review for a new agency is complex.

"Could it happen? Yes," Wren said of client defections on an investor call about the deal Monday morning. "Will it happen? Yes. But I think people would be shortsighted in doing that."

The deal will also shake up the homes of some of the industry's top talent.

To achieve the $750 million in annual savings predicted in Monday's announcement, Omnicom and IPG will likely part with some high-level executives who have developed close relationships with clients, Singh said.

Omnicom executives said cost synergies are expected to come from eliminating duplicative spending with vendors, combining the companies' real estate footprints and shared service centers, among other sources.

Wren argued Monday that the merger will give the combined company the resources needed to "create pretty incredible job opportunities."

"People may choose to change their careers, but I'm not worried about any of our senior people doing that because I think both cultures, both leaders here are sensitive to making certain that we provide career opportunities for the best and the brightest," he said.

Any redundancies that are created by the merger could widen the talent pool for in-house marketing departments, in which marketers employ their own creative and media workers to do their advertising and other tasks, according to a CMO of a Fortune 500 company.

Another executive said the agency model is increasingly obsolete, given that advertisers can now easily work directly with the handful of big media players still operating.

"I'm surprised that agencies still exist at all anymore," said Joy Howard, CMO at secondhand electronics marketplace Back Market and the former CMO at speaker-maker Sonos and ride-hailing company Lyft, who stopped working with agencies years ago. "I'm not surprised, however, that they would consolidate themselves in an effort to stay competitive."

More scale, less transparency

If the Omnicom-IPG deal goes through, the combined company will supplant WPP's GroupM as the largest global media buyer and gain new leverage with ad sellers in the process, according to Comvergence, a market research firm.

Any increased buying power the merger could offer would be welcome, as would the companies' combined technology resources, including emerging artificial intelligence capabilities, some marketers said.

"Scale does matter, global scale does matter, efficiency does matter, and innovation does matter," said Doug Sweeny, the CMO of wearable tech company Oura Health, which last year hired IPG's Mediahub as its media agency. "Building out their AI, which can impact business in a way that we're not entirely clear about, as a larger entity together will make them more formidable to pressures on their moat."

However, concentrated agency power might expedite a shift toward principal-based buying, in which agencies buy ad inventory and resell it to clients at a markup, according to Ruben Schreurs, group chief executive of media investment analysis firm Ebiquity.

Because agencies rarely reveal the details of these transactions, CMOs can struggle to determine how effectively they are balancing clients' interests with maximizing their own revenue, Schreurs said.

Some marketers choose not to apply the principal-based approach to their media investments because of concerns about a lack of transparency, Schreurs said. But the new entity's size and influence will allow it to sign more competitive deals with media owners and motivate marketers to trade transparency for savings, he said.

Shifting power

For large global clients seeking an advertising partner with similar reach, the Omnicom-IPG tie-up will mean a substantial reduction in options, especially when clients want to avoid working with agencies that already serve a major competitor.

But marketing remains an industry based on relationships, which means CMOs will retain their influence even if they have one less big network to choose from, according to Boff, the former GE marketing chief.

Agencies will have to work harder than ever to avoid ruffling clients' feathers as existing relationships become the primary way they can differentiate themselves from competitors that offer nearly identical services, Boff said.

"This is consolidation that's going to lead to more commoditization, I'm afraid," she said.

Write to Megan Graham at megan.graham@wsj.com, Katie Deighton at katie.deighton@wsj.com and Patrick Coffee at patrick.coffee@wsj.com

(END) Dow Jones Newswires

December 11, 2024 06:00 ET (11:00 GMT)

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