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.Reuse content