Acquisition: The motives behind Omnicom’s latest buy - Omnicom has had its chequebook out again, this time to buy up Fleishman-Hillard. The move mirrors the approach it has taken to building its advertising agency networks

Last week’s purchase of Fleishman-Hillard by Omnicom was just the latest acquisition in a spending spree that has reminded many of the Saatchis during the 1980s.

Last week’s purchase of Fleishman-Hillard by Omnicom was just the

latest acquisition in a spending spree that has reminded many of the

Saatchis during the 1980s.



Omnicom has already stated its intention to form a new group from F-H

and its biggest existing PR interest Porter Novelli International. And

although the level of integration and branding is unlikely to emerge

until the end of the year, this could be the birth of the world’s

largest PR firm.



In the past six years Omnicom has spent almost dollars 1 billion buying

up companies all over the world. It has pursued a strategy of augmenting

its revenue and profit growth with acquisitions that have helped broaden

its portfolio of services and its geographic base. The company now has

an almost equal split between domestic (US) and international revenue,

which last year represented some dollars 1.26 billion or 47 per cent of

total revenues. Although with growth of ten per cent this still lagged

behind the 24 per cent hike in domestic revenues.



Its core business remains advertising, representing 65 per cent of

Omnicom’s revenues. This incorporates three worldwide networks: DDB

Needham, BBDO and TBWA and is still growing. In January it added London

advertising agency Simons Palmer Clemmow Johnson, which it merged with

TBWA.



But the fastest-growing area of its business is marketing services:

direct marketing, sales promotion, contract publishing and, now the

biggest single category, PR, all of which come under Diversified Agency

Services.



Over the past two years, Omnicom has bought its way to the front of the

PR pack. In 16 months it has acquired Ketchum PR (January 1996),

organisational communications specialist Smythe Dorward Lambert

(October), a 20 per cent stake in hi-tech agency A Plus (March 1996),

and now F-H.



Anthony Wreford, communications consultant to Omnicom, points to its

strategy for building its advertising networks as the role model for its

PR development. He cites three categories of acquisition: the first to

create a network, the second to strengthen that network where there are

gaps.



Here Wreford draws parallels between DDB Needham’s 1980s merger with

London agency BMP to create an ’international first division’ agency,

and Omnicom’s recent purchase of Scope to boost Ketchum in London.



And it is in this context that the F-H acquisition should be seen. While

Porter Novelli’s strengths lie in healthcare, food and entertainment,

F-H is stronger in corporate, financial and public affairs. In terms of

their relative strength outside the US market, last year Porter Novelli

generated dollars 40 million of overseas revenue, exactly twice that of

F-H.



As Omnicom president and CEO John Wren explains: ’By combining them you

can provide the global service that clients increasingly want and use

their extra teeth in different areas such as professional development -

attracting the best people.’



Wren believes that PR has come of age in terms of globalisation. ’I

discovered that 53 per cent of F-H’s clients have international budgets.

That’s unbelievable,’ he says excitedly.



The third category is the stand-alone niche businesses such as Smythe

Dorward Lambert or financial specialists Gavin Anderson, which are left

alone because of their international potential in a particular

field.



Omnicom’s differing strategies for its ’first division’ PR agencies and

the ’niche’ players reflects a current trend in PR - the polarisation of

those companies gaining the critical mass to compete for clients’ global

business and the specialists who are forming their own international

networks.



Some see the medium-sized players as being ’squeezed out’ - which may

offer some insight into the attraction of a merger for Porter Novelli

and F-H, respectively at numbers four and five in the league table of

international PR firms.



John Graham, chairman and CEO of F-H, hints that it needed Omnicom’s

resources to make the leap to truly global status: ’After operating for

51 years successfully as an independent firm, we determined that an

agreement of this nature can best provide the greater resources to

expand our network of offices, meet the growing needs of our clients and

provide greater opportunities for our staff.’



Whether he ’chose’ Omnicom as a parent is a moot point. There are

reports that the asking price scared off other potential buyers.



As for the benefits of the deal for Porter Novelli, according to Wren,

it will have more clout within Omnicom and greater access to capital to

open new offices and invest in its staff and technology.



The deal also makes sense in that the agencies have few conflicts - out

of combined revenues of dollars 229 million last year, billings to

clients that may be in direct conflict represented just dollars 5

million, according to Porter Novelli president and CEO Bob

Druckenmiller.



So have we come to the end of Omnicom’s shopping list? ’Yes other than

to support our existing agencies,’ says Wren, ’There’s nothing of any

size out there that we’re interested in.’



But with such respect from the marketing community, high growth rates

and an ability to integrate with other marketing disciplines, PR

agencies are still top buys for other marketing services shoppers. Who,

one wonders, will be next past the till?



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