Few mega deals bring the value promised
The merging of Omnicom with Publicis offers a phenomenal opportunity to both companies -- that ultimately benefits their customers -- to take a much-needed step back to focus on creating real value from their combination.
The merger of these two massive ad holding companies (formerly the number 2 and 3 players behind Martin Sorrell's WPP) looks remarkably like another era of major consolidation (from around 1990 till about 2000), when the number of banks in the U.S. shrunk by more than 40 percent.
Throughout that period, few consolidated bank holding companies delivered the value they forecasted when they announced their deals. Indeed, in a 1998 review, Federal Reserve members Steven Pilloff and Anthony Santomero argued that mergers that year yielded little benefit or none at all, and that the combined company's market value was, on average, no higher than the value of its parts. There were of course a few notable exceptions to this rule (e.g., US Bancorp), but there can be little debate that massive companies' ability to capture anticipated synergies and market benefit is mixed at best.
What's also clear is that when combinations of this size are successful, it happens when executive management continually challenges its leaders to clearly identify the specific opportunities available and ensure that they are achieved.
So how does Publicis Omnicom Groupe address the market's overall skepticism on their deal and effectively wring the full potential out of their combined entity? Experience (as you may have suspected, I had a front row seat during those banking years) suggests there are four critical steps for team Levy-Wren, each with stiff challenges for P-O:
Identify clear leadership. This will be a real test in a company with two CEOs (Messrs. Wren and Levy have agreed to share the role for two years). In successful mergers, the CEO takes control over crucial dependencies, makes tough decisions, and prepares to spend a lot of time executing the consolidation plan. Without this control and decisiveness, there is a real risk that critical time will be wasted with senior management vying for positions in the new organization.
Get all levels of the organization involved. The first step in this process is to appoint executives from all major business units to an integration group responsible for prioritizing issues and coordinating efforts. The challenges for P-O unfortunately abound on this front as well, as the cultures of these two organizations are so substantially different. Who serves in the integration group will make for tough decisions at the top, and cultural differences will further complicate the role of top leadership.
There must be specificity that allows the organization to accurately identify the route to consolidation of information technology systems, back-office operations, salespeople's roles, administrative support structures, and distribution outlets. In this digital age, the way these support functions get combined is absolutely crucial to ensuring a smooth easy transition for clients - who are already (due to their own internal complexities) starved for greater agility from their agency partners to make all the consumer marketing data that the agencies collect on their client's behalf something they can use more easily to let consumers know that they are evolving with them on this digital journey.
Customer attrition management is essential. Don't underestimate how tough this can become in a combined company where the potential for inherent conflicts of interest perceived by customers may be considerable - analyst estimates of the loss of customers in mergers of this size is 7-10 percent. [e.g., PepsiCo and Coca-Cola; AT&T, Sprint, T-Mobile and Verizon]. Setting high retention targets will bring out creativity in the integration design and motivate managers, resulting in a service and product approach that meets customers' perceived value and is delivered through efficient, streamlined mechanisms.
The net: Publicis Omnicom Groupe must take this golden opportunity to redesign rather than integrate. Consolidation provides an opportunity to step up and look at both merger partners' processes, infrastructure, and business approaches instead of simply migrating potentially inefficient and/or outdated processes from one company to another. This does not mean the institutions should attempt to take the best practices of both organizations and create the perfect ad company. However, fixing the parts before forming the whole can be done in such a way as to capture real value for customers and consumers (and ergo, shareholders).
Regardless of the likely challenges of pursuing one, a comprehensive redesign -- one that focuses on examining processes, infrastructure and the internal approaches that drive each business -will alleviate operational duplication and create real economies of scale from realigned products and services that ultimately benefit employees, customers, and the consumer.
Parts of this post are excerpted from the article entitled: "In Busy M&A Generation, Few Deals Brought Value Promised" by Jacqueline Corbelli, as published in the American Banker, October 21, 2001.