Elliott Management's activist position in Interpublic Group (Part 6 of 7)
Paul Singer’s hedge fund Elliott Management disclosed an activist position in the advertising firm Interpublic Group (IPG). According to unconfirmed sources it’s looking at pushing to sell the company.
Interpublic is the fourth-largest agency holding company in terms of revenue, behind WPP (WPPGF), Omnicom (OMC), and Publicis. Since last year, the advertising industry witnessed consolidation with the acquisition of Aegis by Dentsu and other acquisitions made by IPG and its peers WPP, Omnicom, and Publicis. Last year, Omnicom and Publicis agreed to a $35 billion merger, but the deal was terminated in May in view of difficulties in completing the transaction within a reasonable time frame. According to research from Results International, WPP made 54 acquisitions in 2013 while Publicis and Omnicom made 19 and nine acquisitions, respectively.
Interpublic participated in industry consolidation with acquisitions of UK-based global digital network Profero, advertising agency Inferno, and India-based digital marketing agency Interactive Avenues among others. Chief executive officer Micheal Roth added during IPG’s first quarter earnings call that the company’s 21% growth in the UK was driven by acquisitions of Inferno and Profero. During the second quarter, IPG’s Weber Shandwick acquired Prime, a creative PR agency in Sweden, and its business intelligence arm United Minds. IPG’s marketing agency Jack Morton Worldwide acquired Boston-based digital agency Genuine Interactive Inc. The management said on its forth quarter earnings call that, “Our M&A pipeline continues to be very strong. While timing can shift between periods, we continue to target $150 million to $200 million annually. We remain focused primarily on high growth disciplines and markets expanding our digital capabilities and opportunistically strengthening our presence in world markets.” They further added that, “Our pipeline for the future acquisitions is frankly more global than U.S.”
Traditional agencies see competition from online platforms and technology companies
With the increasing shift to digital advertising, traditional ad agencies such as IPG have been facing competitive pressure from online platforms, like Facebook (or FB) and Google (or GOOG), who have access to “big data” for personalized and targeted advertising. Also, technology and consultancy companies such as IBM, Salesforce, Adobe, HP, and Oracle have also been expanding into the digital marketing space with cloud solutions to analyze complex user data and provide insights. According to Publicis’ release last year on its proposed merger with Omnicom, “The communication and marketing landscape has undergone dramatic changes in recent years including the exponential development of new media giants, the explosion of Big Data, blurring of the roles of all players and profound changes in consumer behavior. This evolution has created both great challenges and tremendous opportunities for clients.” News reports further noted that the companies in the industry are trying to achieve economies of scale through mergers and acquisitions of smaller agencies.
Magna Global said that due to the organic growth of digital media and television, other traditional media categories are losing market shares in most markets. At the end of 2013, global print media market share was down to 22%, and was smaller than digital media, which continues to grow by double digits. Mobile accounts for 19% of digital media advertising. It’s forecast to grow to 24% in 2014 and to 38% by 2019.
Interpublic subject of takeover speculation
According to news reports, IPG was rumored to be an attractive takeover candidate for its peers, especially the Japanese media network Dentsu (or DNTUY), France-based Havas (HAVSF), or larger peer Publicis (PUBGY). According to latest reports, both Publicis and WPP said they weren’t seeking any mega deals. In a memo to staff cited by Adage, Interpublic CEO Michael Roth said, “there’s no compelling reason for IPG to merge with another firm—we’re competing at the highest levels and are winning business from our largest peers. We don’t have gaps in our offering, either geographically or by marketing discipline, and we’re backed by a powerful balance sheet.”
Browse this series on Market Realist:
- Part 1 - Why Elliott Management goes activist on Interpublic Group
- Part 2 - Must-know: An overview of Interpublic Group’s businesses
- Part 3 - Why margin improvement is a priority for Interpublic
- Mergers, Acquisitions & Takeovers
- Interpublic Group
- Elliott Management