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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Adbrands Weekly Update 18th Apr 2018: Omnicom was first out of the gates as usual with quarterly results. Revenues of $3.63bn represented solid organic growth of 2.4%. However, there was a worrying, though only marginal, decline in North America. Modest growth in the US was undercut by losses in Canada, resulting in a negative 0.1% slide. That was offset by 3.1% growth in the UK, and also in Latin America, a robust 7.3% in Asia Pacific and even more impressive 9.7% lift in mainland Europe. Omnicom also introduced some new segmental divisions for its service range. There are two new categories alongside advertising, healthcare and public relations. CRM Consumer Experience groups activities such as digital/direct, branding, shopper marketing and experiential, and was the group's strongest growth unit in 1Q. CRM Execution & Support covers field marketing, sales support, merchandising and POS. That's a tricky distinction, especially differentiating between shopper marketing in one pot and field marketing, merchandising and POS in another. There was a modest benefit on the bottom line from tax reforms. Pretax income was up only 1%, but net income after tax grew 9% to $264m.

Adbrands Weekly Update 29th Mar 2018: Johnson & Johnson completed a closed review of creative duties for its US consumer healthcare brands with a restructuring of the relationship with what are already its two main suppliers: Omnicom (primarily BBDO and DDB) and WPP (mainly J Walter Thompson). Media is already consolidated at Interpublic with dedicated agency J3, and J&J has now persuaded Omnicom and WPP to follow suit with the creation of two new specialised entities. Omnicom's is named Velocity, bringing together teams from BBDO, DDB and its satellite unit Roberts & Langer, and the group's PR agencies. It is led by Brian Nienhaus, who transfers across from We Are Unlimited, the same group's dedicated McDonald's agency. Meanwhile, WPP has launched Neighborhood, combining resources from JWT, VML, shopper agency Geometry, and production division Hogarth, as well as its own collection of PR agencies. Leadership has yet to be confirmed, but Krystal Herr, who currently oversees J&J's business at JWT is among the top managers.

Adbrands Weekly Update 1st Mar 2018: With all the groups' results in, final scorecard for organic/LFL growth/decline for 4Q is as follows: Interpublic +3.3%, MDC +3.3%, Dentsu 2.8%, Publicis +2.2%, Omnicom +1.6%, WPP revenues +1.2%, WPP net ex pass-throughs -1.3%, Havas -2.1%. For the year, MDC +7.0%, Omnicom +3.0%, Interpublic +1.8%, Publicis +0.8%, Dentsu 0.1%, WPP revenues -0.3%, Havas -0.8%, WPP net ex pass-throughs -0.9%.

Adbrands Weekly Update 15th Feb 2018: Omnicom's 4Q figures were weaker than several recent quarters, marked by a organic declines in two of its biggest markets, North America (down 0.8%) and UK (down 0.7%). Latin America was also down. However Europe gained 8.2% and Asia Pacific 6.0%. That resulted in a combined 1.6% gain for the quarter, cutting the full year to 3.0%. Reported revenues were just under $15.3bn. A $106m tax adjustment for the final quarter caused a 5% decline in net income to $1.09bn.

Adbrands Weekly Update 19th Oct 2017: Omnicom was as usual first out of the gate with 3Q results. Once again, they set a high bar for rival groups to hit. (Last quarter also, Omnicom far outperformed all its peers). Reported revenues for the quarter slipped to $3.72bn as a result of divested businesses, but the organic increase net of currency and M&A was 2.8% for the quarter, lifting the year to-date figure to 3.5%. Developed markets all delivered solid growth, led by Europe at 7.8% organic, the UK at 3.8%, North America 2.1% and Asia Pacific 1.4%. The main disappointment was Latin America, down 5.4%. Net income for the quarter rose 4% to $264m.

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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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