What Happens When Agency Mergers and Acquisitions Disappoint?

Benefits of going it alone can outweigh risks

The lifeblood of the ad business has always been entrepreneurs who sell their businesses and energize industry holding companies.

While the promise of personal wealth, resources and global expansion are a draw for sellers, the realities of relinquishing control become clear. (Consider Mad Men's Sterling Cooper & Partners, who had barely drained their champagne flutes before McCann Erickson swallowed what was to be an "independent subsidiary," causing SC&P execs to bolt.) Back to real life, while newly enriched sellers eventually do cash in their chips and leave, there are those operators who remain to face a new life of compromise within publicly traded behemoths. That can sometimes lead to the dissolution of those ties.

Consider Fame, the Minneapolis retail consultancy, newly independent after its launch by Omnicom 14 years ago. Similarly, San Francisco-based Pereira & O'Dell last month bought back majority ownership from backer Grupo ABC and last year digital shop EVB reclaimed the majority stake it sold to Omnicom in 2006.

Why would smaller shops want to rough it on their own in a complex, changing industry? Quite simply, it's about becoming the master of their own destiny again.

Corporate strategies change—and along with them, often a holding company's original interests. EVB founder Daniel Stein said after Omnicom shifted digital priorities toward big data, his more creatively driven shop felt sidelined. What's more, Omnicom agencies became more aggressive in the pursuit of client digital assignments. The proposed Publicis merger brought the prospect of more competition. "It's really difficult to be a small agency within a larger organization. The best thing about Omnicom is they leave you alone; the most frustrating thing is they leave you alone," said Stein. "We needed a little strategic help, new-business help. I thought we'd be an acquisition within a more strategic overall plan. In terms of new business, we ate what we killed ourselves."

The failed merger, which would have combined many of the agency's major players under one roof, caused others to rethink the value of independence. While Pereira & O'Dell had nothing to do with Publicis or Omnicom, it made CEO Andrew O'Dell realize he didn't want to be a pawn in corporate machinations. "I wasn't a fan of being a piece in that kind of situation," O'Dell said at a recent conference.

That said, O'Dell credited Grupo ABC with providing needed business advice as the San Francisco-based agency expanded to new markets like New York, Sao Paulo and Rio de Janeiro. Also, even though Pereira & O'Dell has regained control, Grupo remains a minority investor. So, while the ownership structure has changed, Grupo is still a partner—and a valued one at that.

Fame CEO Lynne Robertson said her agency needed its independence to regain agility. On being independent for the first time in her shop's history, she said, "I'm now on top of the decision-making pyramid. That's empowering and daunting at the same time."

In addition to setting their own budgets, investment strategies and profit goals, break-away agencies also say they reduce expenses when they don't have to conform to holding company rules and regulations.

MWW founder Michael Kempner, who in 2011 engineered a buyback of his PR company from Interpublic, said, "It's not like we lost our entrepreneurial spirit, but we became an IPG version of it. And I didn't realize the weight of that on the shoulders of my team or how much we were missing until the buyback when I saw the heaviness they felt working for a holding company."

Of course, such considerations aren't exactly top of mind for sellers in the middle of hard-nosed negotiations. That's why industry M&A experts like Seth Alpert, managing director at AdMedia, advises sellers to be clear-eyed about the implications of surrendering control. After all, many holding companies won't be so quick to part with their agency investments after the fact. "You sold it, they own it," he said. "They can do what they want with it."