What Does It Take to Survive a Client M&A?

CHICAGO Sears and Kmart. Federated and May. Procter & Gamble and Gillette. Sprint and Nextel. The list goes on. At present, there are six major company mergers pending that in essence put in question the fate of more than $5 billion in media billings. Throw in MCI, which is likely to wed Verizon Communications, and that figure jumps to $5.5 billion. 2005 is shaping up to be a blockbuster M&A year, and the impact on ad agencies and budgets will be bigger than ever, as newly merged and minted companies select new partners while looking for corporate efficiencies, which often leads to cuts in ad spending. Conventional wisdom holds that the lead agency for the acquiring company almost always winds up with the entire account. But an Adweek analysis of 11 mega-mergers dating back to 2000 proves that occurs far less often than that. Creative agencies of the acquiring companies did retain major pieces of the business in eight cases—the whole account five times, parts of it three times. Media incumbents were even more successful. But variations on the theme benefited agencies (or siblings) on the rosters of the acquired companies-and, more than once, shops new to both companies. Some advertisers, perhaps unwilling to put all their eggs in one holding-company basket, are rewarding both sides. For instance, after Cingular parent SBC bought AT&T Wireless, Cingular retained Omnicom's BBDO as lead creative agency. (AT&T Wireless had used WPP's Ogilvy & Mather, Omnicom's Goodby, Silverstein & Partners and IPG's Gotham.) Cingular's media agency was Omnicom's OMD, but instead of putting Omnicom in control of both media and creative, the client retained AT&T's media shop, WPP's Mediaedge:cia. "You can't assume anything," said Susan Gianinno, CEO of Publicis USA, which is awaiting the outcome of the Procter & Gamble-Gillette deal. (Her agency handles P&G brands; Gillette is handled by BBDO.) "Every client handles it in a different way. You can't assume because you've been through it with one client that lessons learned are going to transfer." Who ends up in the marketing suite has an effect. Sprint acquired Nextel, but Nextel's Mark Schweitzer ended up leading marketing at the merged company, giving hope to TBWA\Chiat\Day. But sometimes even that isn't enough. When Pfizer acquired Warner Lambert in 2000, the head marketing job went to then-Warner executive Kaki Hinton, but Pfizer's incumbent, Carat, still beat out Warner's, which was MindShare. Client familiarity didn't help Foote Cone & Belding or Gardner Nelson & Partners when it came to JPMorganChase's $300 million account after its merger with Bank One. (FCB handled Chase; Gardner held Bank One.) After a review, a nonroster shop, New York independent mcgarrybowen, was awarded creative duties. Five months later, nonroster shop Zenith Media beat Bank One incumbent Carat and Initiative, which had handled projects for Chase, in a media review. Some say there isn't much you can do to sway a decision. "I ask all of our account guys, if the client had three agencies and went to two, would you be one of them, and if it had two and went to one, would you be the one?" said Ken Kaess, CEO of Omnicom's DDB. "I don't know what else you can do." For different reasons, analysts also are wary of the effects of mergers on marketing and advertising. Since cost savings are a key selling point of these deals to shareholders, advertising and marketing budgets are typically among the first things to be examined once deals are closed, according to industry observers. "Legitimate concerns are being raised concerning the impact of these mergers on advertising spending," Merrill Lynch analyst Lauren Rich Fine wrote in a recent report. "Ad agencies could also lose out when the clients and their ad budgets are consolidated." And with so many retail-heavy clients heading down the aisle, newspapers are likely to feel more pressure than some other media. A Deutsche Bank report earlier this year suggested the newspaper industry could lose $180 million in ad revenue from the Federated/May merger alone. (A Federated rep had no comment, saying no decisions had been made.) "If there is a silver lining, it is one of improved corporate confidence and perhaps a sign of heightened willingness to spend [on acquisitions]," Fine wrote. That's small consolation for some. Said one executive with a major client going through a merger: "We're certainly not captains of our own destiny."

Brand Marketing

What Does It Take to Survive a Client M&A?

Aaron Baar

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Aaron Baar