Defining Moments in Agency History | Decade of Agency Mergers, the Foreign Invasion, and the Rise of Holding Companies

Read this article series on the history of advertising agencies from Marsha Appel, SVP Research Services, marsha@4as.org. Don’t miss other Defining Moments in Agency History. Let us know what you think!

 

While mergers, acquisitions, and consolidations have been a part of the agency business as long as there’s been an agency business, a confluence of factors caused something very special to happen in the 1980s. That single decade saw a complete transformation of the agency landscape in a dizzying frenzy of mergers, the likes of which had not been seen before or since.

“Has the Merger Era Ended?” asks the title of a feature article in the August 1980 issue of Marketing & Media Decisions. Its conclusion was yes, a reasonable assertion, given the pace of agency mergers during the 1970s. During that decade, for example, Young & Rubicam swept through the country like a vacuum cleaner, sucking up no fewer than 14 prominent independent regional agencies, such as Sive, Creswell Munsell, Hutchins/Darcy, Frye-Sills, and Brewer, plus B2B powerhouse Marsteller. Specialized services were also major targets for all the larger agencies and they were particularly aggressive in acquiring public relations, recruitment, and direct marketing agencies. In 1979 alone, there were 23 acquisitions, topping the previous record of 13 in 1977. The article was peppered with quotes like:

  • “The acquisition pace will slow down among agencies that have gone public”—Don Zuckert, President, Bates
  • “Bigger agencies will concentrate acquisition aims at specialized agencies and allied communications services”—Steve Kahler, COO/CFO, BBDO
  • “The era of the big agency acquisitions may be grinding to an end. There aren’t many possibilities left”—Jim Mortenson, President, Y&R Affiliates
  • “The trend among the major agencies will be to seek out acquisitions that will expand across the whole communications field…areas of specialization that do not present problems of conflict”—Chuck Peebler, Chairman/President, Bozell & Jacobs

It seemed as if consolidation had gone as far as it could, with only slim pickings remaining, according to analyst Fred Anchel of Dean Witter Reynolds, who said, “I expect the wave of aggressive agency acquisitions to slow down, except in the area of specialized services. But that too could peter out. There isn’t much left available in the way of full-service agencies.”

So much for prognostications. Except for their prediction that European agencies would be investing in U.S. agencies, they could not have been more wrong. The 1980s ushered in the most dramatic set of acquisitions ever in agency history. In 1980, the only top 10 U.S. agency owned by a holding company was Interpublic’s McCann-Erickson. By the end of the decade, 8 of the top 10 proud names of the agency world were no longer independent. Those last two holdouts, Young & Rubicam and Grey, succumbed in 2000 and 2004, respectively, both becoming part of WPP.

So what happened in the 1980s?

In the first half of the 1980s, there were a number of sizable acquisitions of agencies by firms with deep pockets and the belief that the ad business was splitting into two parts: small shops serving mostly local accounts and a few enormous multinational agencies with huge global clients. Among the mergers were:

  • Dailey & Associates (by Interpublic)
  • McCaffrey & McCall (Saatchi & Saatchi)
  • William Esty (Ted Bates)
  • Cunningham & Walsh (Mickelberry)
  • Kenyon & Eckhardt (Lorimar)

In 1982, in the largest deal to that date, Britain’s largest agency, Saatchi & Saatchi, paid $57 million for Compton Advertising, the 14th largest U.S. agency. They subsequently purchased Backer & Spielvogel and Dancer Fitzgerald Sample. That was just the beginning. BBDO acquired Waring & LaRosa; Foote, Cone & Belding bought Leber Katz Partners and NCK; Interpublic bought Metzdorf; Grey bought Levine, Huntley, Schmidt & Beaver, and the list goes on.

Why?

  1. The economy in the U.S. and abroad was improving and clients were increasing ad spending.
  2. The largest clients were demanding that their agencies be big enough to service them in all major worldwide markets, impelling agencies to accelerate expansion abroad by acquiring foreign agencies. FCB CEO Norman Brown believed that much of an agency’s fortune is the result of having clients in growth industries; upon identifying multinationals as ‘growth industries,’ he made it a priority to acquire overseas agencies.
  3. Client retention and growth dictated that agencies be able to provide a much broader range of services than ever before. In the 1970s, that primarily meant public relations (FCB+Carl Byoir, Benton & Bowles+Manning, Selvage & Lee), direct response marketing (Y&R+Stone & Adler, DDB+Rapp & Collins) and recruitment (DDB+Hodes, FCB+Deutsch, Shea & Evans). They continued in the 1980s with aggressive programs to acquire an even broader array of disciplines, including medical, agricultural, and sales promotion. For example, DDB acquired agribusiness agency Fletcher/Mayo and healthcare agencies Kallir, Philips, Ross and York/Alpern.
  4. In that “Greed is good” (remember Gordon Gekko in the 1987 movie, Wall Street?) and “Bigger is better” era, agencies emulated what their clients were doing. In the corporate world, Procter & Gamble bought Richardson-Vicks, Unilever bought Chesebrough-Pond’s, R.J. Reynolds acquired Nabisco, and Philip Morris bought General Foods and then Kraft. Agencies needed to increase size and scale, so they grew by merging with other agencies that shared clients, had desirable talent, and needed skill sets.

Big Bang

In April 1986, in what came to be known as the Big Bang, BBDO, Doyle Dane Bernbach, and Needham Harper & Steers (the 5th, 11th, and 16th largest agencies in 1984) announced that they were joining to create a new holding company. To prevent the loss of business due to client perceptions of account conflicts in the new entity, they set it up with Doyle Dane Bernbach and Needham Harper as a single agency within the new group, and BBDO as a separate agency reporting to the same holding company management. The new company’s name, Omnicom Group, was unveiled in June of that year, after some amusing speculation that it would be called BeeBeeDeeDeeNeeDee. For a brief moment, it was the biggest global agency.

Saatchi & Saatchi and the Foreign Invasion

The shock reverberating through the agency world following that announcement had not yet subsided, when, a mere two weeks later, it was revealed that Saatchi & Saatchi was acquiring Ted Bates, the 5th largest U.S. agency, in a deal valued at $450 million. Bob Jacoby, CEO of Bates, walked away with a cool $111 million. (That got clients thinking that they were overpaying their agencies, and was the precipitating factor in accelerating the decline of the commission system of agency compensation. But that’s a story for another day.)

After that, dominoes fell rapidly as foreign agencies marched in with pockets full of cash. In addition to Saatchi & Saatchi, most visible was WPP (also from the U.K.) and later, Publicis from France. A few foreign players that are now defunct or have morphed into different identities played in the U.S. sandbox as well:

  • Roux, Seguela, Cayzac, & Goudard (France) + Tatham-Laird & Kudner and Messner Vetere Carey Berger Schmetterer (see also Worst agency receptionist job)
  • WCRS (UK), which acquired Della Femina, Travisano and HBM Creamer
  • Mojo MDA (Australia) + Allen & Dorward
  • BDDP (France) + Wells, Rich, Greene
  • GGT (UK) + GSD&M and Martin-Williams
  • Groupe FCA (France) + Bloom
  • GGK (Switzerland) + Lois Pitts Gershon Pon
  • Boase Massimi Pollitt (UK) + Ammirati & Puris

Many of the remaining large independent agencies thought they could prevail by joining forces, so there were mergers resulting in D’Arcy Masius Benton & Bowles; Bozell, Jacobs, Kenyon & Eckhardt; Laurence Charles Free & Lawson; Jordan, McGrath, Case & Taylor; Rosenfeld, Sirowitz, Humphrey & Strauss; Tucker Wayne/Luckie; and Ackerman, Hood & McQueen. It is interesting to note that almost all of those combinations occurred in 1986 and 1987.

Another type of popular combination in that era was the set of short-lived partnerships with foreign agencies, among which were Y&R + Dentsu to form DYR, and an FCB partnership with Publicis. Try to follow this one: Havas Conseil became HCM in 1985, then merged with the aforementioned DYR to form HDM (the abbreviation of Havas Dentsu Marsteller) in 1987, which then merged with Lord Einstein O’Neill in 1991 to become Lord Dentsu.

Ascendance of WPP

Not to be outdone by the Saatchi brothers, his former bosses, WPP’s Martin Sorrell embarked on a U.S. agency acquisition spree. Unlike the Saatchis, he did not shy away from hostile takeovers, acquiring J. Walter Thompson in 1987 in a shocking move, and then Ogilvy & Mather as the decade was drawing to a close in 1989. Y&R came under WPP control in 2000, and Grey in 2004.

1990s and onward

While the 1980s transactions were seen as growth for growth’s sake at spectacularly high prices, mergers in the 1990s were more reasonably priced and done for more practical purposes. Alan J. Gottesman, an analyst at Paine Weber, said in 1992, “If you want to identify the deals of five years ago as components of empire-building, these tend to be strategic or symbiotic on an operating level.”

For those keeping score, Publicis didn’t really come on to the scene in the U.S. until 1994, when it acquired Bloom FCA!, followed by Hal Riney and the Evans Group in 1998, a portion of Burrell in 1999, and ultimately Saatchi & Saatchi in June 2000.

The agency landscape is now changing once again, as agencies deal with new competition and unprecedented technology challenges. But the magnitude of the merger decade that created the mega holding companies changed the entire fabric of the industry permanently and has never been replicated.

Download Keep all the mergers straight with this list of Agency Mergers from 1980-1989.