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 protracted and distracting negotiations, the merger was called off in May 2014. Unlike its French partner, Omnicom bounced back from those negotiations rapidly with a string of key account gains.

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 25th Oct 2018: Daimler completed a review of global media, consolidating all duties not with Publicis as many had anticipated but with Omnicom Media Group. Earlier this year, creative and digital for Mercedes-Benz was awarded to a newly created Publicis Emil entity, replacing incumbent BBDO. However the media appointment maintains a split of duties between those two groups. Media in the US and some other countries was already being managed by Omnicom, while Publicis held Europe through dedicated unit Fuel. WPP, which had retained media in several other markets, mostly in Asia, was eliminated. No details of how the media account will now be handled have been disclosed; presumably Omnicom will create a dedicated entity of its own.

Adbrands Weekly Update 18th Oct 2018: Omnicom continued to sail a steady course through 3Q, with a 2.9% organic lift in revenues to $3.7bn. On a reported basis that figure was down marginally as a result of currency headwinds. The organic gains were generated primarily in Euro markets (up 6.9%) and Asia Pacific (up an impressive 13.6%). That offset a lacklustre 0.6% lift in the US, a 0.3% decline in the UK and negative 5.4% in Canada and Mexico. Tax cuts underpinned a 15% jump in net income to $331m. However an even bigger contributor to that increase was a $178m net gain on the sale of various subsidiary agencies, most notably German callcentre operator Sellbytel. Without that gain pretax income would have been down by more than a third year-on-year as a result of steep increases in costs and expenses.

Adbrands Weekly Update 9th Aug 2018: Agencies continue to deny any serious new business threat from from consultancies such as Accenture and Deloitte. Yet at the same time they are covering all bases by launching their own management consultancy offerings. Grey is the latest to join the fray with the launch of Grey Consulting, which brings together a team of around 150 consultants globally. The unit will be run by Leo Rayman, previously CEO of Grey London. "Our practice will go beyond traditional consulting," said Grey global CEO Michael Houston. "We will combine analytical rigour with lateral creative thinking and an understanding of how to make things happen to accelerate growth for clients." Separately, Omnicom bought a majority stake in management and technology consultancy Credera, its first acquisition in this space. The newly acquired unit, which specialises in marketing technology and ecommerce, will become part of the group's digital and CRM specialist division Omnicom Precision Marketing Group (OPMG).

Adbrands Weekly Update 19th Jul 2018: Omnicom delivered sluggish performance in 2Q. Revenues of $3.86bn represented overall organic growth of 2.0%, lower than analysts had expected. Strong growth in Continental Europe (11.2%) and Asia Pacific (8.5%) offset continuing weakness in North America (down 0.9%) and the UK (down 2.2%). Net income rose almost 11% to $364m on the back of lower tax rates. Organic growth in revenues for the half year to-date was 2.2%. The results worried investors, who marked down Omnicom's shares by as much as 10%. With only WPP left to report 2Q figures (not until September), here's the current ranking for organic growth (or decline) in 2Q. Dentsu 5.9%, Interpublic 5.6%, Omnicom 2.0%, MDC -1.7%, Publicis -2.1%, Havas approx -4.1%.

Adbrands Weekly Update 19th Jul 2018: Omnicom countered the recently announced acquisition by Interpublic of Acxiom with an expansion of its own data analytics and precision marketing offering, currently housed in media subsidiary Annalect. It will now roll out its data platform across all its other marketing disciplines under the banner of Omni. The official announcement claimed: "At the core of Omni is the industry's most robust people-based identity graph - a database of connected consumers built from all significant identity authorities including Neustar, LiveRamp and Experian among several others. The identity graph links second-by-second consumer behaviours to reveal how people connect, engage and transact with brands." Omnicom Digital CEO Jonathan Nelson said, "Until now, the idea of mass personalisation was more of an aspiration than a reality. Omni changes that. This is precision marketing at scale and in action. And the new platform can be leveraged by all Omnicom clients across multiple disciplines."

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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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