US buyer scoops Abbott for pounds 346m

News Analysis: Advertising's drive to go global looks irresistible as another UK agency is taken over

ANOTHER advertising agency bowed out of the London stock market yesterday when Abbott Mead Vickers, one of the most respected names in British advertising, agreed a pounds 346m takeover by the US giant Omnicom.

The deal is the second time in 1998 that Omnicom, which is the largest advertising company in the world on revenues, has pulled out its cheque book to buy a UK agency. Earlier this year it spent pounds 146m on the GGT Group.

The Abbott Mead deal has not come as a huge surprise. The British agency has been one of Omnicom's representatives in the London advertising world for nine years, by acting as part of its worldwide BBDO network. The US group has also owned at least a 25 per cent stake in AMV since 1991.

The agency is one of the most attractive assets in UK advertising, best known for its eye-catching campaigns for products such as Guinness and The Economist. According to Campaign, the industry trade magazine, Abbott Mead Vickers-BBDO was the largest agency in the UK in 1997 with billings of pounds 356m.

What is more, AMV controls a clutch of other companies involved in related areas such as public relations, direct marketing and media buying. Freud Communications, the consumer public relations outfit run by industry guru Matthew Freud, is a subsidiary of AMV.

The company also has a very strong reputation in the City as one of the few groups which was able to grow through the previous recession. "The directors went out and won enough business to make sure they didn't have to fire anyone in 1991 and 1992," says Paul Richards, media analyst at West LB Panmure, the merchant bank. "The City has loved them for it ever since."

Despite all AMV's strengths, Omnicom wanted full control. "The bid was a question of when, not if," Mr Richards adds. "The UK is the fourth-largest advertising market in the world, and if I were a major player I would want my UK network to be fully owned." The same argument applied to GGT, which has now been fully integrated into TBWA, another of Omnicom's global networks.

This may make sense for Omnicom, but was it necessary for AMV? According to Peter Mead, the company's chairman, there is little to stop a few creative people from setting up an advertising company in the same way he and his fellow founders did in 1977.

"One of the great joys of the advertising business is that it doesn't cost very much to set up shop," he says. This is AMV's experience - despite starting from a small base it quickly grew by picking up prestigious accounts such as Sainsbury's, Yellow Pages and Volvo. They are still clients today. Nevertheless, Mr Mead points out that for really large international accounts, a global network is essential

The logic of a bid was strengthened by the fact that the City was beginning to ask questions about AMV's future. Co-founder David Abbott had already retired, and Adrian Vickers and Peter Mead, the chairman, are in their fifties.

And then there is the globalisation argument. Advertising, the argument goes, is globalising along with its customer base. To serve large multinational accounts, agencies have to be able to design campaigns and carry them out in any market the client wants.

In theory, then, taking over AMV should not make any real difference to Omnicom. But industry sources suggest that the Abbott Mead Vickers- BBDO relationship did not always work as well as Omnicom had wanted.

Peter Mead, AMV chairman, insists the takeover will benefit both companies. "This will bring us closer together and give an opportunity for our people to work internationally," he says.

But sceptics point out that this argument has been heard before and proved false. In the late 1980s, British advertising agencies such as Saatchi & Saatchi and WPP borrowed heavily to build global networks which would offer a "one-stop shop" of services for large clients. But when recession hit, the dream ended. Now Saatchi & Saatchi and Cordiant Communications Group - once part of the same group - are separate listed companies.

But industry executives insist the trend has not stopped. Martin Sorrell, chief executive of WPP, argues that eventually there will only be room for five global advertising groups. Giants such as Omnicom and Interpublic, which owns the McCann Erickson network, are almost certain to be among them. The others will either be swallowed up by the giants or will have to concentrate on niche businesses in their own countries.

"The process of consolidation has not stopped," says one observer. "It's just that US companies, which are valued more highly by the market and have a lower cost of capital, are making most of the acquisitions."

This argument is borne out by the way the Omnicom-AMV takeover is structured. The US group is not paying cash, but is issuing its own highly-rated paper in return for AMV shares. What's more, by accounting for the transaction as a pooling of interests, Omnicom avoids having to write off the goodwill that would normally be associated with a takeover.

This allows Omnicom to offer a high price without diluting its own profitability. The deal values AMV at almost three times revenues and a multiple of 27 times last year's earnings. "You won't find many companies trading on those multiples in the UK," says one industry executive.

While they are globalising, advertising companies are also diversifying. Twenty years ago they would do little more than design a campaign, leaving it up to the company to make sure it was carried out properly. But as different forms of media proliferate, advertising companies are increasingly designing complete strategies. As a result, they have started buying up public relations and media planning agencies.

It may still be too early to tell. But it looks as if the vision of a global "one-stop-shop for all advertising needs may yet become a reality.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
News
i100
News
Budapest, 1989. Sleepware and panties.
newsDavid Hlynsky's images of Soviet Union shop windows shine a light on our consumerist culture
Arts and Entertainment
Eleanor Catton has hit back after being accused of 'treachery' for criticising the government.
books
News
In humans, the ability to regulate the expression of genes through thoughts alone could open up an entirely new avenue for medicine.
science
News
Williams says: 'The reason I got jobs was because they would blow the budget on the big guys - but they only had to pay me the price of a cup of tea'
arts + ents
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee