Omnicom Group (US)

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Omnicom is the world's second largest marketing services group, controlling an extensive collection of different businesses led by the global advertising networks of BBDO, DDB and TBWA, three agencies with a reputation unequalled within the industry for consistently excellent creative work. Its main media buying network is OMD Worldwide, partnered by fast-growing PHD. The group also controls an extensive collection of marketing services companies including PR giant FleishmanHillard, digital and direct marketer Rapp, and branding agencies Interbrand and Wolff Olins. An early investor in the internet economy, Omnicom learned several tough financial lessons from the subsequent crash, and since then has almost entirely avoided cumbersome and goodwill-heavy acquisitions. Instead it has concentrated on filling out gaps in its coverage with highly selective purchases of niche players. Despite the lack of any major acquisitions, Omnicom's overall revenues have continued to rise steadily, mainly through organic growth. In July 2013, Omnicom announced plans to merge with rival Publicis to create a new global leader in the marketing services industry. That announcement prompted considerable negative comment within the industry, but was cleared by virtually all competition regulators. However, there was growing disagreement between the rival management teams over the structure of a combined entity, as well as difficulty in securing necessary tax arrangements. After nine months of negotiation, the merger was called off in May 2014.

Who are the clients of Omnicom? See individual agency profiles below for more

Who are the competitors of Omnicom? See ranking of Leading Global Marketing Groups 

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Recent stories from Adbrands Weekly Update:

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 20th Oct 2016: Omnicom was, as usual, first out of the gates with 3Q results. Revenues rose 3.2% organic for the quarter to just under $3.8bn. (The nine-month YTD organic figure was 3.4%). Broken out by region, the UK was up by an impressive 5.2% on an organic basis (but down 10.4% at current post-Brexit exchange rates), while North America managed only 1.7% organic. Elsewhere, Euro Markets and Other Europe scored a 2.0% increase; while Asia Pacific managed 8.0% and Latin America 11.9%. Group net income was up over 6% to $254m, better than expected, but topline missed analysts' expectations, prompting a 2% fall in OMC's stock price.

Adbrands Weekly Update 18th Aug 2016: It's been another great week for Omnicom in account assignments, this time at WPP's expense. AT&T has consolidated the bulk of its marketing with the US-based group. BBDO already handled creative for the main AT&T brand, but it will also take over DirecTV from long-time incumbent Grey. At the same time, all media will move from MEC - it has been that agency's biggest account - to Omnicom's newly created Hearts & Science unit, created last year to handle P&G in North America. In an interview with Ad Age, AT&T's CMO Lori Lee and head of advertising Fiona Carter said Hearts & Science's digital and data-driven approach gave it a "slight edge" over WPP. MEC was said to have been confident it would retain the business until the final announcement. The account loss is likely to cast a cloud over WPP's 4Q results announcement next Wednesday.

Adbrands Weekly Update 21st Jul 2016: Omnicom was out of the gates with 2Q results faster than usual last Thursday, beating not only all the other marketing groups but matching JPMorganChase, which traditionally leads every quarterly reporting period. Figures were very slightly below expectations. Revenues rose by 2.1% on a reported basis, and by 3.4% organic, to $3.9bn. (Organic growth for the full half year was 3.6%). Making a significant change from past performance, mainland Europe was one of the group's best performing regions, with an organic increase of 4.3%, only slightly behind Asia Pacific (4.5%) and well ahead of the UK (3.3%) and North America (3.2%). Net income rose 3.9% to $326m. In his presentation to analysts, CEO John Wren, acknowledged the impact of heightened terrorist threats on some aspects of client spend, especially on experiential events. "Clients really are taking a hard look at some of the events that they would typically throw and they pull back on them, they cancel them. Not certainly every event, but it was enough to have an impact of a couple of percent on our growth in the quarter." Yet, he said, "while it is impossible to predict the effects of Brexit as well as the impact of the US presidential election, we remain cautiously optimistic for the second half of the year and on target to achieve our 2016 plan."

Adbrands Weekly Update 9th Jun 2016: After several delays, US trade body the Association of National Advertisers published its long-awaited report into allegations that mediaowners routinely pay kickbacks to media agencies to encourage volume bookings, among other non-transparent activities. The ANA had commissioned corporate risk specialists K2 Intelligence to investigate following former Mediacom executive Jon Mandel's explosive presentation at a 2015 ANA conference, in which he described rebates as widespread, despite repeated denials from agencies and their holding companies. K2 spent eight months on the case, interviewing 150 executives on condition of anonymity. The final study names no names of individuals, agencies or mediaowners, but says that bad practices are pervasive throughout the industry. These include rebates in actual cash that was not passed back to the client, as well as in the form of free inventory that could be sold on to clients at a profit. Mediaowners were also found to have paid agencies to supply low-value consultancy or research services "to obscure what was essentially a rebate". See the full report here. The ANA also released a second study, compiled by marketing consultancies Ebiquity and FirmDecisions offering a methodology for how to increase transparency in the industry. This includes the recommendation that clients review their existing contracts with agencies. Analysts fear that this could lead to another blizzard of media reviews in coming months.

The reaction of ad agencies to the report was generally one of anger and another round of denials that such practices take place. Publicis, Omnicom and WPP all called on the ANA to publish hard evidence to back up what are otherwise Publicis described as "broad, unsubstantiated and unverifiable assertions". The US organisation representing agencies, the so-called 4A's, reiterated that demand. WPP also questioned the objectivity of the report's authors and advisors. Greg Paull from industry consultancy R3 highlighted a more serious underlying situation, one that Sir Martin Sorrell has repeatedly referred to in his own quarterly financial reports: the preference of procurement-led clients to cut costs rather than raise expenditure. "The bigger issue," Paull told Adweek, "is actually the dynamic between marketing, procurement and agencies. Marketers are underpaying and agencies are undercharging. To get a truly strategic set of insights, strategy and execution requires a totally different approach to lowest cost of media and fees. This is a US report but a worldwide problem. Agencies and clients need to re-set globally with clearer contractual terms and clearer agreements."


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Background

Free for all users | see full profile for current activities: Omnicom was formed in 1986 by BBDO chairman & CEO Allen Rosenshine, primarily as a defence against the global expansion of British group Saatchi & Saatchi, which had already completed a series of acquisitions in the US and was in preliminary negotiations to purchase Doyle Dane Bernbach. Rosenshine engineered what was then an unprecedented merger of three leading US agencies, BBDO, Needham Harper and Doyle Dane Bernbach, creating the world's biggest advertising group. (A few weeks later, the Saatchis stole back that title as a result of the acquisition of another leading US agency Ted Bates). Rosenshine then served as Omnicom's chairman for three years, before handing over control to his former BBDO colleague Bruce Crawford. Crawford had joined BBDO in 1963, and was president of the company from 1975 to 1983. That year he resigned to become general manager of New York's Metropolitan Opera, before returning to Omnicom in 1989. The group acquired a third agency network, TBWA, in 1990. 

For much of the 1990s Omnicom busied itself with bolstering its global networks while also adding a huge selection of marketing services businesses to the portfolio. From mid-decade onwards, the group became one of the most high-profile investors in online marketing, taking sizeable minority stakes in a series of hot digital businesses. One of the first of these was design start-up Agency.com, which received investment from Omnicom as early as 1996, and went on to become arguably the foremost web design shop of the late 1990s. By 1999, the group's interests also included a 30% holding in Razorfish, 19% of Organic, and just under 5% of AnswerThink, an independent which came into the fold when it acquired Omnicom-controlled Think New Ideas. The group also took stakes in Red Sky Interactive, Headhunter.net and marketing services companies Dash.com, L90 and Netcentives. At the end of 1999 these holdings were regrouped within a custom-built division, Communicade. By early 2000, Omnicom was riding high as its initial investment of around $150m had soared a stock market value of more than $2.5bn. 

The group reported revenues of $6.2bn in 2000, with net income up 20% to $435m. Traditional advertising represented 44% of revenues, with the remaining 56% coming from general marketing services. Despite the constant jockeying for position between the main marketing groups Omnicom cemented its reputation during that period as arguably the best-managed of the top three, delivering steady and consistent growth in both revenues and earnings since its formation. Even arch-rival Sir Martin Sorrell of WPP agreed, although he described the group as more like a venture capital fund than a marketing organisation.

Omnicom's interactive portfolio came crashing down to earth when the dotcom boom turned to bust during 2000. By the end of the year, several of the group's leading digital design companies had seen revenues plummet. Omnicom took steps to write off some of its losses in the sector. In April 2001 the group transferred its shareholdings in Agency.com, Organic and Red Sky Interactive into Seneca Investments, a newly formed private company co-owned by Pegasus Partners, an investment fund which specialised in distressed businesses. Razorfish was not so lucky; Omnicom sold off half of its holding (for an impressive $110m pre-tax profit); the rest of the shares were transferred to Seneca which sold off another chunk to reduce its stake to just over 4%. 

During 2001, Omnicom began exploring a marketing environment that had not really been tackled by advertisers since the early days of television, beginning a number of dialogues with producers of TV and cinema entertainment to co-develop branded packages in association with advertiser clients. During the year the group packaged three music specials for television, featuring live performances by Jennifer Lopez, Backstreet Boys and Dixie Chicks, bookended with commercials from key clients. Mid-2001 the group made two further significant acquisitions: branding agency Arnell Group and UK-based design consultancy Wolff Olins. Total group revenues for the year rose 12% to $6.9bn. Net income increased 16% to $503m. 

Shortly afterwards, in the wake of the Enron and Worldcom corporate scandals, the group came under intense pressure from investors over its accounting practices. During the first half of the year, two of Omnicom's non-executive board members resigned, including the head of the group's audit committee, reportedly over the accounting of the transfer of interactive holdings into Seneca. Contributing to these concerns was the fact that the group's auditors until mid-2002 were Arthur Andersen, the accountancy firm shamed in the Enron scandal. Spurred on by a series of hard-hitting stories in the Wall Street Journal questioning Omnicom's accounting policies, a group of shareholders launched a class action suit alleging the company had misrepresented certain aspects of its financial affairs. Omnicom issued a robust denial of any wrongdoing, and a line was drawn under the affair a few weeks later when Omnicom's historical accounting of the Seneca deal was endorsed by its new auditors. A court case rumbled on despite this development but was eventually dismissed in 2008.

Since then the group has continued to flourish, while its main rival Interpublic has suffered a series of reverses and accounting adjustments. The Seneca deal was subsequently unwound, following Omnicom's buyout of the Organic and Agency.com operations, both now apparently profitable. However the group has firmly resisted any temptation to mount large acquisitions, preferring instead to concentrate on organic growth and a series of small bolt-on deals to fill out gaps in its coverage. See full profile for current activities


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