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We have some big M&A news in the global advertising agency space this Monday morning. Omnicom (OMC -7.4%) will acquire The Interpublic Group (IPG +8.8%) in an all-stock transaction. IPG shareholders will receive 0.344 OMC shares for each share of IPG they own. Following the close of the transaction, OMC shareholders will own 60.6% of the combined company and IPG shareholders will own 39.4%. The deal is expected to close in 2H25.

• The transaction would create the world's largest advertising agency with combined 2023 revenue of $25.6 bln. The combined company will retain the Omnicom name and trade under the OMC ticker symbol on the NYSE. John Wren will remain Chairman & CEO of Omnicom with Phil Angelastro remaining as CFO of Omnicom. Philippe Krakowsky and Daryl Simm will serve as Co-Presidents and COOs of Omnicom.
• The new Omnicom will deliver end-to-end services across media, precision marketing, CRM, data, digital commerce, advertising, healthcare, public relations and branding. OMC says the deal will combine highly complementary data and technology platforms, enabling new offerings to better serve clients. Also, the companies expect the combination to generate annual cost synergies of $750 mln and to be accretive to adjusted EPS for both Omnicom and Interpublic shareholders.
• Another factor likely playing a role is the changing technological landscape in the advertising arena, especially the impact of AI. Big ad agencies are seeing increasing competition as companies like TikTok, Google Ads and Facebook Ads siphon off ad spending. These companies are developing AI ad creation tools that clients can use to create their own ads. They are also using AI and automation to offer enhanced services. Combining OMC and IPG should help these agencies compete better.
• On the call, analysts asked about potential hurdles in terms of regulatory approval issues given that OMC is the third largest ad agency in the world and IPG is the fourth. They both have massive ad buying power, which may provide an unfair advantage. However, OMC explained that the ad world is not just divided among the big four ad agencies. Companies like Google, Facebook, Amazon, and many others are servicing clients' marketing needs. OMC also said the Trump administration is expected to be more business-friendly.

Overall, this deal makes a lot of sense for these massive ad agencies, assuming the deal will pass regulatory muster. The new Omnicom will benefit from cost savings and should be in a better position to compete with online advertising services. IPG is trading higher given the nice premium, however, shares of OMC are heading lower. Investors typically do not like to see an acquiring company use stock to finance M&A deals as it dilutes current shareholders. Also, using stock sends a signal that perhaps management thinks its share price is on the fully valued side.