M&A can be painful.

On Sunday I learned about the potential merger of Publicis and Omnicom group.

During my career, I spent time working at agencies owned by both holding companies – Saatchi & Saatchi (Publicis), Trial DDB (Omnicom) and OMD (Omnicom).  I also worked at Euro RSCG which is owned by HAVAS and Kirshenbaum, Bond & Partners owned by MDC.  So, I’ve done the rounds across the various holding companies.  Based on my experience working in agencies and as a client who has hired many agencies, I do not see this merger as a positive.  Here are a few of the reasons why:

1) It’s not about the clients: We hire ad agencies to develop creative solutions to complex business problems.  When I hire an agency, I want the team to focus on my business.  I don’t want them to be distracted by holding company M&A activity that doesn’t make a difference to my business.  Also, when Omnicom-Publicis talk about efficiencies that will produce $500 million in savings, that means one thing — layoffs.  When advertising people are threatened by layoffs, they’ll often start talking to headhunters and looking for the next gig.  As a client, having a lot of turnover on the team that manages our account is a bad thing.

2) The conflict mess: Bringing Omnicom and Publicis together will create a mess of client conflicts and have a big impact on the ability of any agency in the network to pursue new business.  The agencies are going to spend more time figuring out creative ways to work around these conflicts than coming up with the big ideas to win the business.

3) Holding company wins but the agencies lose: When I worked for one of the large holding companies, I saw first hand how these deals can go badly.  I was working with a large client who had a deal at the holding company level.  This client primarily worked with one agency in the holding company, but decided they wanted new some new ideas.  Executive management at the holding company told this client that they could have several of the holding company agencies pitch the business.  It was better to keep the business in the holding company than lose it to an outside agency.  But, what ended up happening was that this client would have the three main holding company agencies pitch almost every single project.  The client liked this because they could get lots of ideas from the different agencies.  But, it was hell on the agencies because they were constantly pitching with no guarantee of consistent business from the client.  What’s worse is that they weren’t getting compensated for the pitch work.  So, they’d have to eat that cost just to pick up a single project.  It was a bad deal for these agencies and really damaged morale.  In the long-term, I believe the service to that client suffered.

4) Creative drain: Most of the creative people I’ve worked with in my career have little or no interest working in large bureaucracies.  The bigger these holding companies get, the more it will turn off the creative talent needed to attract clients. On the positive side, you’ll continue to see a lot of the best talent fleeing from the holding companies to work at smaller shops or start new agencies.  You’ll also see a lot of clients leaving the big shops for the smaller shops that are easier to work with and produce bigger and better ideas.

5) No real efficiencies gained: Whenever a merger is announced, there’s always talk of “efficiencies”.  This always seems to be a primary justification for the merger.  These companies will be better together.  They will make more money and save more money.  But, the reality is that these potential efficiencies are never realized.  In all my time working for agencies owned by holding companies, I can’t point to one single “efficiency” that I witnessed.  I’m sure there were probably some back office gains with employee benefits and real estate.  But, the holding companies were a non-factor in the day-to-day business of the agency.  I can’t say that I even met a single person from the holding company during my agency days.

In response to the announcement, David Jones, CEO of rival holding company Havas said, “Our business is very simple – it’s about clients and talented employees – and as I said, I’m not sure this move is good for either of them,”

I tend to agree.