The Interpublic Group of Companies (US)

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Interpublic (IPG) is one of the traditional big four international marketing organisations, alongside WPP, Omnicom and Publicis,. A one-time pioneer in the industry, it struggled for most of the early 2000s with challenges in different parts of its portfolio. Initially, these difficulties stemmed from a string of expensive acquisitions in 1999 and 2000: Interpublic was plagued by problems as it attempted to integrate its new purchases. Matters were made worse by a disastrous investment in UK motor-racing and accounting errors which led to repeated restatements of the group's financial results. Meanwhile, there were significant client losses within its UM and Initiative media networks as well as from core creative agencies Lowe and McCann Erickson. A shake-up of senior management in early 2003 failed to put an end to these problems, which dragged on through 2004 and most of 2005. There was a further restructuring in 2006 which led to the merger of FCB with integrated network Draft to form Draftfcb, but that network too shed several key clients. In 2009, Interpublic slipped below Publicis for the first time to become the #4 ad organisation worldwide, and for the next few years struggled with yet another decline at lead network McCann. A series of management changes across the main agencies, and the relaunch of Draftfcb under its old name of FCB seemed finally to have drawn a line under past troubles by 2014.

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Adbrands Weekly Update 9th Mar 2017: With all the marketing groups' results now in, here's the final ranking for organic growth for 4Q and full year 2016. The full year ranking is led by Dentsu (5.1%), followed by Interpublic (5.0%), Omnicom (3.5%), Havas (3.1%), WPP (net sales 3.1%, revenues 3.0%), MDC Partners (2.3%) and Publicis (negative 0.7%). The table for 4Q alone is topped by Interpublic (5.1%), ahead of Havas (4.2%), Dentsu (3.9%), MDC Partners (3.8%), Omnicom (3.6%), WPP (net sales 2.1% revenues 0.5%) and Publicis (negative 2.5%).

Adbrands Weekly Update 16th Feb 2017: Interpublic delivered an excellent close to the year, with an impressive organic lift in the final quarter of 5.3%. (That compared to 3.6% for Omnicom and a 2.5% decline for Publicis). The strong 4Q lifted IPG's full year growth to 5.0%, with reported revenues of $7.85bn. Europe was the group's star performer, with the UK up an extraordinary 11.7% for 4Q and the rest of Europe by 11.1%. Asia Pacific contributed 7.5%, Latin America 5.0% and North America 3.3%. Net income was boosted by spending cuts in operating expenses, resulting in a 13% jump to a record high of $633m.

Adbrands Weekly Update 8th Dec 2016: Ad industry ethics came under the regulatory spotlight yet again this week following confirmation of an investigation by the US Justice Department into allegations that the major groups "rigged" new business pitches to favour their own inhouse production networks. According to evidence seen by the WSJ, selected unnamed agencies sought written cost estimates from independent production companies for work in order "to create a paper trail that justified to the advertiser its decision to award the project to an in-house facility, which provided a rival bid at a lower price". All the major groups now have their own inhouse global production networks, including WPP's Hogarth and Townhouse, Omnicom's eg+ and Publicis Groupe's Prodigious, as do many larger standalone agencies. Interpublic, Omnicom, WPP and Publicis all subsequently confirmed that certain unnamed subsidiary agencies had received subpoenas in connection with the investigation.

Adbrands Weekly Update 27th Oct 2016: Once again Interpublic outperformed its peers for organic growth in 3Q. Revenues rose to $1.92bn, an organic lift of 4.3%. (Omnicom reported 3.2% and Publicis a dismal 0.2%; WPP reports next week; Dentsu in mid-November). IPG's figure for the year-to-date was 4.8%. Best performance came from international markets, up a combined 8.1% for the quarter (compared to 1.8% in the US alone). Star markets were Latin America (up almost 18% organic) and the UK (over 16%). Continental Europe was up over 8%, though Asia Pacific recorded a slight decline. Net income for 3Q soared by 72% to $129m.

Adbrands Weekly Update 21st Jul 2016: Once again, Interpublic outclassed its main rivals on organic growth, with an increase of 3.7% (or 2.2% reported) to $1.92bn. For the full half, the organic increase was 5.1%. Most of the growth came from the US, up 4.6%, compared to 2.3% from international markets. Net income jumped 29% to almost $157m.


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Background

Free for all users | see full profile for current activities: Interpublic's financial troubles during the 2000s mark the second time that the group has come close to disaster through ill-considered expansion. Interpublic was officially formed at the end of 1960 as a holding company for McCann-Erickson and a group of marketing services subsidiaries it had acquired during the 1950s. (See McCann Erickson profile for background). Yet within just seven years of its creation the group was hovering on the brink of bankruptcy.

The key idea behind the formation of The Interpublic Group of Companies, as it is still officially titled, was to provide a structure to allow McCann-Erickson to handle competing clients. In 1954, McCann's brilliant but obsessive CEO Marion Harper acquired a Cleveland agency, Marschalk & Pratt, which had successfully poached part of McCann's core Standard Oil account several years earlier. Borrowing a strategy already pioneered by another client, General Motors, which owned several different and competing car brands, Harper chose not to fold Marschalk into the McCann-Erickson network but left it to operate as a standalone agency under the name McCann-Marschalk. As a result, Harper's empire was, at a stroke, now able to service competing accounts, a feat no other advertising company had managed until then. "What we've done," Harper told Newsweek in 1964, "is take the management ladder and turn it into a horizontal position."

Initially, Interpublic comprised four divisions: McCann-Erickson Advertising in the US; its worldwide operation McCann-Erickson International; second-string agency McCann-Marschalk and the diversified marketing operations of Communications Affiliates, which included PR business Communications Counsellors and sales promotion agency Sales Communications. With the client competition problem apparently resolved by the creation of Interpublic, Harper rapidly set about adding further businesses to his portfolio. A steady stream of more than 35 other purchases followed, culminating in 1963 in the purchase of rival giant Erwin Wasey Ruthrauff & Ryan. That deal finally vaulted Interpublic ahead of J Walter Thompson to become the world's biggest advertising company, with billings of $500m, compared to Thompson's $420m. In 1964, Fortune magazine celebrated Interpublic's extraordinary growth with a feature entitled "Marion Harper's Big Tent"

Behind the scenes, however, the ringmaster had already lost control of the circus. At its peak, Interpublic had 24 different divisions and billings of $711m, but Harper's obsessive zeal prevented him from delegating any major decisions. The death in 1962 of the group's controlling shareholder, Harrison McCann, left Harper in virtual sole control of the business, and although he was undoubtedly a genius when it came to business structure and strategy, he had surprisingly little financial acumen. According to a subsequent group chairman, Neal Gilliatt, he lost touch with the reality of being in the advertising business and instead "began building a monument to himself... and then living and acting accordingly. He decided he should live as well as some of his major clients." Harper began to lavish an extraordinary amount of money on executive perks, not least a fleet of five aircraft, including a expensively furnished DC-7 set aside for Harper's personal use. He also ploughed the profits from McCann's main operations into wholly speculative new business units, without any clear plan for how to make back the investment.

At the same time, the horizontal structure in which Harper had put so much faith was also showing cracks. Nestlé transferred its business from McCann in 1964 because newly acquired Erwin Wasey handled what was then a rival, Carnation. Several Wasey clients also pulled their business after the agency's acquisition, at a combined cost of around $11m in billings. A year later, Continental Airlines transferred its account because another Interpublic subsidiary handled rival carrier Braniff. (Ironically Braniff too pulled its business and handed it to a start-up agency formed by a former Interpublic staffer, Mary Wells, later the wife of Braniff's chairman).

By this time, many of the men who had supported Harper through McCann's phenomenal growth during the 1950s had retired. Instead he became increasingly reliant upon Bob Durham, described by Harper's biographer Russ Johnston as "loud-talking, fast-moving, hard-drinking, pleasure-loving… a master at corporate intrigue, a past master at corporate infighting". Johnston compares him to Rasputin. "It would be wrong to blame Bob Durham for Marion Harper's fall from the top of Interpublic," says Johnston. "But if anyone contributed more to Harper's increasing troubles, that person would be hard to find." During the course of the 1960s, Interpublic's losses spiralled, peaking at what was then an exorbitant figure of $2.8m in 1967. Its debt also rose steadily, from $1m in 1962 to more than $9m by 1967. That year, Interpublic violated the terms of its loan agreement, making it potentially liable for full repayment of its debts on demand. Since it had insufficient funds available to make such a payment, the entire business would be forced into receivership.

Behind the scenes, Harper also had increasingly serious financial problems of his own. In 1965, the Internal Revenue Service had initiated an investigation into his financial affairs, claiming that his tax returns were incomplete. The probe eventually found discrepancies in the accounting of a series of lavish investments in cattle-breeding, then a popular tax shelter for high earning executives. For some reason, Harper paid little or no attention to a subsequent tax demand, and the IRS eventually issued a lawsuit, and secured a judgement against him to freeze his personal assets. There were also concerns over possible conflicts of interest relating to Harper's shareholding in a data processing company which also took on confidential work for rival agencies.

In 1967, Interpublic's board finally acted to save the struggling giant. In November that year, Harper was shifted into the role of chairman. Robert Healy, who had been chairman of McCann US and later of Interpublic's international operations during the 1950s and early 60s, was brought out of semi-retirement to oversee a drastic pruning of the group. Over the following months, Healy closed or sold a number of non-core businesses, consolidating Interpublic's 24 divisions into just five and dismissing 500 of the group's 8,000 employees. At the same time, to tide over Interpublic's precarious cash requirements, Healy persuaded three of the group's biggest clients - Coca-Cola, Carnation and distiller Heublein - to lend the company an advance on future fees. On the strength of that vote of confidence, he was able to negotiate a life-saving bridging loan from Chase Manhattan in early 1968. The bank's only condition was that Marion Harper, perceived as the architect of the chaos which had engulfed Interpublic, should resign. He finally left the company he had created in February that year.

In an attempt to brush aside this ignominious fall, Harper threw himself into a new, albeit much smaller venture. He joined forces with Ron Rosenfeld and Len Sirowitz of DDB to launch creative boutique Harper Rosenfeld Sirowitz. It was not to last. After just five months, Harper was fired by his partners for being "inaccessible and autocratic". Soon afterwards, the IRS issued him with a demand for $500,000 in back-taxes. In 1973, Harper dropped out of sight altogether, and for years not even his lawyer or his now-estranged wife knew where he was. In 1979, in an attempt to shed light on the apparent mystery of his disappearance, Advertising Age sent a reporter to Oklahoma City to interview his mother. The reporter was sitting in her living room when Marion Harper walked in. He lived nearby, he told the reporter, and he was broke. He re-established a low-key position in the industry during the 1980s as a business consultant and writer before his death in 1989, aged 73.

Meanwhile Interpublic had regained its focus. Healy oversaw Interpublic's IPO in 1971, and in 1978, with Paul Foley as chairman & CEO, it finally achieved Marion Harper's long dreamt of goal of becoming the global leader in the industry, pulling off what was then the biggest merger in advertising history. The acquisition of SSC&B (formerly Sullivan, Stauffer, Colwell & Bayles) pushed combined billings up to $2.6bn, almost twice those of Japanese rival Dentsu. SSC&B became the fifth advertising brand within Interpublic's portfolio alongside McCann, Marschalk, Erwin Wasey and Campbell-Ewald.

With its strength restored, Interpublic went shopping again in the 1980s, making the most of the worldwide consolidation in the advertising industry to add Lintas International, Lowe Group and others to its portfolio. In the 1990s, Ammirati & Puris joined the club, and was merged with Lintas to form Ammirati Puris Lintas. Media buyer Western International followed suit in 1994, and direct marketers Draft Worldwide in 1996. In 1998, the group gobbled up UK-based International Public Relations, then the world's largest PR firm, and comprising the Shandwick and Golin/Harris PR businesses. Interpublic was also an early investor in interactive businesses, taking a minority stake in digital agency CKS in 1995. (CKS later was swallowed up into ill-fated MarchFirst). Also in 1997, the group invested in US agency Nicholson NY and community site Tripod. Thunder House Online Marketing was acquired in late 1996 as part of the Weber PR Group and absorbed McCann Interactive in 1998. The group made its biggest investment in new media with the 1999 acquisition of a 20% stake in the major Swedish interactive agency Icon MediaLab (later LB Icon/Framfab) for $20m. Most of these interactive interests were eventually combined under the Zentropy Partners umbrella (now MRM/McCann).

Overshadowed by the strength of McCann-Erickson, neither Lowe nor APL had become a clear #2 within the portfolio. Lowe was generally perceived to be highly creative, but not international enough; APL was international, but weak creatively and too dependent on its Unilever heritage. During 1999, Interpublic entered detailed negotiations to acquire MacManus, the holding company for the more powerful DMB&B network. In preparation for this anticipated purchase, Lowe and APL were combined to form Lowe Lintas, leaving room for the expected newcomer. IPG's management team was as surprised as the rest of the industry when D'Arcy was gobbled up by Leo Burnett instead.

Interpublic brushed over that setback with a string of other deals. In late 1999 and early 2000, the group added a series of other businesses including research and marketing consultancy NFO Worldwide, leading Hispanic agency Casanova Pendrill and independent shop Suissa Miller. But the most envied deal was the capture of maverick creative hothouse Deutsch in late 2000. Around the same time, in what was then an unprecedented group-level deal, IPG itself, rather than any of its subsidiary agencies, was appointed by Coca-Cola as its global ad strategist, responsible for all worldwide marketing. McCann was already one of Coke's main agencies but the wider brief was thought to have added another $2bn or more to group billings.

Interpublic finally picked up its third network in March 2001 with an agreement to acquire True North, parent to FCB Worldwide. IPG paid $2.1bn in shares to absorb the smaller business, which also housed a wide selection of marketing services subsidiaries. Shortly afterwards, IPG's chairman & CEO Phil Geier took the opportunity to retire on a high note, handing over his role to McCann CEO John Dooner. This was to prove a wise move on Geier's part. Retrospectively, the True North deal couldn't have come at worse time, and was probably the most ill-advised decision Interpublic managers had made since Marion Harper's excesses in the 1960s. Almost immediately, new group boss Dooner was faced with a set of daunting challenges. First was the mammoth restructuring needed to absorb True North into IPG's already huge portfolio, while at the same time coping with a slump in worldwide advertising expenditure in the wake of the dotcom crash. FCB was itself in poor shape as a result of the loss of its share of the DaimlerChrysler account a few weeks earlier. Interpublic's accounts for 2001 reflected the generally difficult advertising environment, including a shortfall of over $200m from sharply reduced interactive revenues, and another $116m from the loss of DaimlerChrysler. Currency fluctuations also played a part, along with hefty tax charges and a big restructuring bill from the integration of True North. After a profit of $420m in 2000 (later restated to $330m), Interpublic reported a substantial net loss for 2001 of $505m. Later restatements raised the figure to more than $610m.

The following year proved even more difficult. There was near-panic among investors when Interpublic delayed publication of its results for 2Q 2002 following the introduction of tighter accounting regulations in the wake of the Worldcom scandal. The company's share price plunged, and IPG subsequently announced that it had identified $68.5m of additional charges which had not been properly expensed. The error originated at McCann-Erickson in Europe, where it appeared that different group companies working together on shared projects for clients over a period of several years were each recording the full value of those projects in their accounts. Luckily for Interpublic, the problems were only internal and clients were still billed correctly. The group said it would revise its annual accounts as far back as 1997 with small adjustments of between $4m and $7m per year.

Yet the blows kept coming. A few months later the company issued a shock profits warning, which it blamed on market conditions as well as problems within its Octagon division. At the same time the group almost doubled the provision for the McCann Europe restatement to $120m. Only weeks after that, the adjustment was itself adjusted, rising to more than $180m, and the group began to make a series of deals to extract itself from various motor sports commitments which had contributed to Octagon's losses. A further blow came when Coca-Cola, under the influence of a new management team, began to backtrack on its worldwide affiliation to IPG agencies, steadily shifting business out of McCann in several territories around the world, including the US.

Interpublic began attempts to tighten up management controls. Frank Borelli was appointed to a new role as presiding director in charge of corporate governance, and financial executive Thomas Dowling was named as chief risk officer, overseeing risk management strategy and internal audit policies. In a surprise reshuffle in early 2003, group CEO John Dooner also resigned his role and stepped down a level to take back control of McCann-Erickson Worldgroup. Former True North chairman David Bell replaced him as group chairman & CEO. Chief financial officer Sean Orr also resigned, replaced briefly by COO Chris Coughlin. Yet none of these changes failed to prevent yet another revision of the figure for financial adjustments, which doubled once more to $340m.

To raise additional cash, IPG sold off market research group NFO Worldwide to Taylor Nelson Sofres (for $425m), as well as virtually all of its 42% shareholding in Modem Media (for around $60m). None of these moves served to improve Interpublic's relationship with disaffected client Coca-Cola. At the end of 2003 the soft drinks giant shifted its entire US media buying account, worth $350m, out of Universal McCann and over to Publicis-owned Starcom MediaVest. For 2003, Interpublic's losses weighed in at $452m (later restated as $539m). Shareholders were later surprised to find that, despite the poor net result, expenses included more than $41m of bonuses to managers. IPG explained that despite the group's net loss, most divisions had hit their restated performance targets for the year.

By mid-2004 Interpublic claimed to have put the worst of its problems behind it, although many shareholders voiced disappointment that the turnaround seemed to be taking so long. Revenues showed some improvement for the first half of the year, but the group continued to report a net deficit. Yet by the end of the year, a new set of errors had been unearthed, prompting the launch of a full investigation tracking accounts as far back as 2000. In a further evolution of the senior management team, David Bell relinquished his role as chairman of Interpublic to Michael Roth, previously chairman & CEO of financial services company The MONY Group. Roth became CEO as well in early 2005. There were more changes in the financial department as well. Chris Coughlin retired in 2004 and was replaced by former SVP of finance Robert Thompson. Only a year later, Thompson was out as well. Frank Mergenthaler, former CFO of the Columbia House mail order company, was appointed as the group's fourth finance director in three years. (Outlasting all his predecessors, he remains in that role in 2010).

Bad news was back in fashion for the rest of 2004 and early 2005. Despite the capture of the Intel account by McCann Erickson in 2005, the group was forced to concede a number of other reviews across its various agencies, not least worldwide media for three major clients: Nestle, General Motors, Unilever and for a fourth, L'Oreal, in Western Europe. Matters were not helped by the fact that the accounting investigation was still dragging on endlessly. Interpublic eventually announced it would release its 2004 figures by the end of September 2005, around eight months behind schedule, and only just in time to avoid a default of its credit arrangements as well as possible delisting by the NYSE.

Yet as the deadline grew nearer, further problems emerged. The group revealed for example that it was also investigating a series of instances involving what it called unlawful "misappropriation of assets" and "falsified books and records", mostly in Eastern European and Latin American business units. The full restatement of past accounts was finally released just before deadline in September 2005. (Interpublic eventually agreed to settle charges of accounting fraud by paying a fine of $12m to the SEC in 2008). Interpublic's problems led one activist shareholder to demand a formal vote on putting the group up for immediate sale to the highest bidder. That proposal was defeated at the group's AGM. However, with little clear improvement in the group's overall performance over the next couple of years, Interpublic was dogged by industry speculation that it would become the target of an acquisition. Towards the end of 2006, Publicis was rumoured to be considering a takeover bid, although any such plans were firmly denied by the French group, and no such offer materialised. Finally in 2007 it began to look as if Interpublic had turned a corner, reporting its first net profit in five years. See full profile for current activities


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