Bigger, biggest -- 3 ad agencies join up
Creativity and braggadocio are the stuff of Madison Avenue. And, it seems, corporate mergers are no exception. This past weekend an unusual ``merger `a trois'' created the largest advertising agency in the world. BBDO International, Doyle Dane Bernbach Group, and Needham Harper Worldwide announced an agreement to unite under one holding-company roof.
The three ad agencies are among the 20 largest. The three have a combined work force of more than 10,000 employees. In 1985, the triumvirate totaled $5 billion in advertising billings. Young & Rubicam, now the nation's largest advertising agency, has billings of about $3.6 billion.
The merger of the three New York-based companies was approved unanimously by the three boards of directors in special sessions last week. There had been rumors of a three-way merger in the works.
Merger is a course that more and more agencies have taken in the past two years to beef up their ability to serve corporate clients, not just in one country but in many locales around the globe.
``Manufacturers are trying to do the same campaign worldwide,'' says Rajeev Batra, assistant professor of advertising at the Columbia Business School. ``They need mega-agencies with huge networks. On their own, these three didn't have this network.''
Mr. Batra says the rationale behind global ad campaigns is ``the perception that consumers are becoming more homogeneous.'' The economies of Europe, Japan, and the United States have reached a level where discretionary income is being spent on similar products and services.
Merrill Lynch ad analyst Jerry Levine sees the merger as a big plus for Doyle Dane. ``In almost every way imaginable they were dead in the water for the last five years. Their chairman left, their creative head left, and there's been a major decline in new accounts.'' Yet Mr. Levine sees benefits for all three companies.
``BBDO and Needham have very little exposure overseas,'' he says. ``Doyle does 25 to 30 percent of its business overseas. That gives [BBDO and Needham] a significant entree to the international market.''
The result, says Levine, is a ``high-powered creative agency'' similar to the Interpublic Group -- a prospering ad house with several major domestic and foreign agencies that operate independently under one roof. Until now, Interpublic was the largest agency in the world.
One potential problem for the merged group (the new name has yet to be announced) could be client conflicts. Doyle Dane handles advertising for Volkswagen and Audi. Needham Harper has the Honda account. BBDO serves Chrysler's Dodge division.
``Traditionally, in the US, you don't do advertising for the same companies in the same business. But with so many mergers on the client side and the agency side, that's becoming more difficult'' to avoid, explains Samuel Craig, marketing professor at New York University graduate school of business.
Levine at Merrill Lynch says it is possible Honda will resign while Volkswagen and Audi stay on.
For the new entity, the key managerial task will be attaining a cohesive effort while maintaining a degree of independence. ``When any organization gets larger, it gets more bureaucratic. Creativity is the product of an agency. Creatives can be stifled by a large organization. When the better creatives get dissatisfied, they leave and form their own shops,'' Mr. Craig says.
But such concerns haven't slowed the merger trend. In fact, many analysts see it continuing. In 10 years, London-based Saatchi & Saatchi has risen rapidly from a small shop to one of the largest in the world -- primarily through acquisitions.
This kind of aggressive growth puts pressure on the major ad players. Levine quips: ``In 30 days, Saatchi & Saatchi will make a bid for the entire group.''