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Tuesday, July 10, 2012

Why Ad Agency Mergers/Acquisitions Don't Work



Virtually every top executive in the business agrees that when one agency buys another and merges them together, one plus one generally equals far less than two.   Can anyone name a truly successful merger in the last twenty five years? (I am not talking about when one agency buys another and leaves it alone like the recent purchase of BBH by Publicis.  I am talking about when two agencies are merged and collide, examples below.)


The reason that the mergers don’t work is because they are not thought out, are not strategic and the dominant company rarely pays attention to the cultures and people of the acquired company.  The holding companies primarily buy agencies to increase revenues.   The rest be damned.

Prior to the mid-to-late 1980’s (when the holding companies formed), many mergers and acquisitions actually worked.  Those acquisitions were thought out on the basis of need. 

Look at the purchase of Myerhoff Advertising in Chicago by BBD&O (as it was then called) in 1979. At that time Mr.Arthur Myerhoff was in his late eighties and found it time to retire; he wanted to insure the continuance of his agency which had a long relationship with Wrigley gum.  When BBDO acquired his agency, it moved Myerhoff intact into BBDO and his people ran the Wm. Wrigley account with little interference from the acquiring agency. Over time Myerhoff slowly merged into the agency.  Wrigley continues there to this day, more than 30 years later.

Prior to the publically held holding companies, mergers were managed carefully to insure that accounts and people stayed.

Not so today.

When buying and merging ad agencies, there is no interest or attention paid to culture.  The result is upheaval.  The turmoil caused by merging usually results in unhappy people at all levels.  Unhappy people make for unhappy clients.  Unhappy clients put their accounts in review.  While there are some back office savings, mostly those are offset by account defections.  
Advertising and creativity are all about people working together. It is still a business about people.  And the one thing missing from 99% of today’s mergers is people and culture.  And that is the critical part of a successful equation.  

One of the best examples of this is in the early 1990’s when Interpublic merged the wonderful agency, Ammirati & Puris (BMW “The Ultimate Driving Machine", Burger King, Seiko) into the successful but troubled agency, Lintas.  Lintas was a hardnosed package goods agency (Lever International Advertising Service). The merger was an unmitigated disaster.  The price of the merger was that Ammirati, a purely domestic U.S. agency, took over the worldwide Lintas network.  The two agencies were entirely unprepared for each other.  The merger died in just a few years.  IPG was forced to merge New York agencies, Lowe and Partners/SMS (Scali McCabe Sloves) into what was then called Ammirati Puris/Lintas.  Within a few years that died, too. About three years ago, Lowe New York was merged into Deutsch which is now a “Lowe and Partners Company”.  So Ammirati, Lintas, Lowe all disappeared from New York.
Another great example is the Omnicom purchase and merger of Chiat/Day and TBWA in the mid nineties.  Although both agencies were considered “creative”, their cultures were very different.  The merger actually worked in Los Angeles because there was no TBWA office there so the culture and accounts were not disturbed.  The two New York agencies were merged but never quite meshed (while it is officially TBWA/Chiat Day, most people still refer to the New York agency Chiat.  Most advertising observers agree that TBWA/Chiat Day has never fared particularly well in Manhattan. 

The list goes on and on.  

All these agencies that I mentioned share one thing in common: their cultures never merged. And culture is everything.

Advertising is a people business.  Creativity is about people.  

One of my favorite merger stories illustrates my point perfectly.  It is when Marketing Corporation of America (MCA), a Connecticut Agency, purchased Ally & Gargano in New York City.  Ally, was an amazing and wonderful agency with a very specific creative culture.  MCA was a hardnosed strategic business with poor creative.   Messrs Ally & Gargano were of an age where they wanted to retire and MCA needed creative expertise.  But the strong creative leaders of Ally, namely Tom Messner, Barry Vetere and Ron Berger, each had the contractual ability to take their money and run.  Which they did.  Almost immediately they formed Messner, Vetere, Berger and Cary (Wally Cary was the account guy, but did not come from Ally, but that is a different story).  Starting from scratch with a couple of accounts brought from Ally, they built a huge business.  The Messner culture was essentially a clone of what they had at Ally.  MCA tried to impose its culture on the remainder of Ally and one by one the Ally clients and senior people all left.  It took a few years, but Ally finally closed.  (Messner today is EURO/RSCG. But Euro was smart enough to allow the cultures of their new agency evolve into what it is today.)

There are dozens of these stories all with the same plot and ending.  I have always believed that the only successful mergers and acquisitions are where there is equal diligence paid to both making sure the financials are right and to insuring that there are compatible cultures.  

Unfortunately, I can think of very few in the advertising business.

14 comments:

  1. This comment has been removed by a blog administrator.

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  2. Paul ... Cant say I agree with overall point of view ...
    There have been 100's of extremely successful acquisition and mergers ... people don't remember them or talk about them, because they were successful and failures always get big new an big press. In my role as Chairman and CEO of Euro RSCG, I saw them ... and I saw them in another way in the examples you bring up. At Scali McCabe Sloves I was part of the very successful acquisition by Ogilvy and Mather ... long forgotten but it brought opportunity and expansion in ways SMS could never had done on its one ... No client losses or defections . All you report came way later after Ogilvy was acquired by WPP .. another story. I was very much a part of the successful merger of Messner Vetere Berger Carey Schmetterer with Della Famina McNamee ... that created Messner Vetere Berger McNamee Schmetterer ... no client losses, no key employee losses .. real integration ... Just two examples for you ... and many more where they came from ... Bst,
    Bob Schmetterer

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  3. Thanks, Bob. I value your opinion.however, to my point, Scali/Ogilvy succeeded because they were separate entities and O&M did not mess with the SMS culture or people. The MVBMS acquisition of Jerry also succeeded because you were smart enough not to mess with their culture and allowed their people to run their own businesses. So you are right about these. Mergers can succeed when culture is left in tact. There are, I am sad to say, more negative examples than positive ones.

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  4. Paul, having witness a few mergers DFCB, Lowe Lintas, G2 and J.Brown, McCann and AL (Anderson & Lembke) I couldn't agree with you more that culture integration is rarely successful. And while the creative product is the end product we produce maintaining the 'right relationships' and ensuring an agency's core competencies and resource work well in concert is critical.

    Kind regards,
    DA

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  5. This comment has been removed by a blog administrator.

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  7. I couldn't agree more that advertising is a people business and creativity is about people. I do think however, that the smaller the agencies, the better chance there is at pleasing people. Also, the length of time the majority of employees have been employed at each agency can also help or hurt.
    Take for example this merger: http://l7creative.com/blog/?p=867
    Two smaller agencies joining forces with a unified vision is hard to replicate, as you said, but I have high hopes for this creative shop. Only time will tell.

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    1. @ Anonymous: All good points. I hope the merger you linked to works - it takes, respect and mutual trust and a lot of teamwork. Hopefully, the essence of both places will remain and a consolidated whole will emerge.

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  8. Mergers and acquisitions can modify the whole company installation and impact everyone from control to workers. The changes must be managed effectively if you do not want the workers to become demoralized by them, since this can impact your company negatively.

    Mergers and Acquisitions

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  9. In general accurate about Ally and Gargano except that neither Amil nor Carl were looking to retire. Amil, in fact, a few years later, broke off from the agency and started Amil Gargano and Partners which lasted a few years. Our agency also did not start collecting former Ally clients (MCI, Dunkin, Volvo) until four years after leaving the A&G agency. Ally should never have gone public, should never have moved from 31st to an absurd overwrought office on 3rd avenue, and most important should have bought some of the computers it was advertising in 1981 and adopted the e-mail it introduced in 1984 instead of remaining the luddite place that bruought it down.

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    1. Tom, thanks for the insight and clarification. My point was that MCA destroyed whatever may have been left of the Ally culture and accounts by trying to force them to become more like MCA; it ended up killing both agencies. The shame is that the MCA people absolutely couldn't understand why the merger didn't work.

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  10. How about an example from the last 5 years? There has been so much M&A, yet the negative examples that you cite are all 20+ years old....

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    1. @Anon: Not sure why you posted anonymously; I welcome disagreement and discussion. To answer your question, however, I can think of three right off the top of my head.

      First is Lowe and Deutsch being put together by IPG in October of 2009, four and a half years ago. It was a spectacular failure; it took about four years to end, but many accounts and executives were lost, especially from the Lowe side. It fell apart last year.

      Publicis merged Mr. Youth and LBi. It is too early to determine if there is any success, but senior executives on both sides have bailed and I believe a number of accounts have left.

      And of course, there is the granddaddy of all of them, Publicis and Omnicom, which never happened because there was a huge clash of egos and cultures.

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