GroupM, the umbrella firm that houses WPP's ad-buying shops, is consolidating two of its global ad-buying agencies to help reduce costs and enable investment in areas that may provide more growth.
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The company is combining MEC, a 15-year-old firm that has 127 offices and places advertising on behalf of clients such as L'Oreal and Vodafone, with Maxus, a nine-year-old firm with 70 offices and clients such as NBCUniversal and Barclays.
The merger will result in cost savings that will likely come from cutting back on real estate, IT systems, back-office services and employees. No targets have been set for job cuts or the savings from such reductions, the company said.
The collapsing of two well-known buying firms into one comes as ad holding companies face increased pressure from advertisers who continue to push for cost savings by shrinking the number of agencies they work with, cutting the fees they pay to agencies, and reducing ad spending. That pressure has eroded agencies' margins.
"We operate in a very competitive sector in a very competitive marketplace, and we do have to find efficiencies so we can invest in areas that will give us longer-term growth," said Kelly Clark, who was named GroupM's global chief executive about eight months ago. "My job is to allocate resources in areas that give us growth in a challenging environment."
The cost savings derived from agency consolidation will help fund GroupM's plan to expand Essence, the digital ad-buying agency it bought in 2015. GroupM plans to open Essence offices in about six markets around the world over the next six to 12 months. Essence already operates in markets such as the U.K., U.S. and Australia.
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It also wants to expand Essence's expertise beyond digital ad buying to include buying traditional media such as TV and outdoor in a more digital and data-driven way. Essence's clients include Google and Visa.
Agencies are anxious to offer clients new approaches to help them stand out in the agency space. Omnicom Group has had success with its new media agency Hearts & Science, which has been positioned as a buying firm focused on data-informed marketing.
"Agency services are highly commoditized," and "most global media agencies are indistinguishable to most marketers," said Brian Wieser, senior research analyst at Pivotal Research Group. "Having a differentiated offering may help agencies stand out, but it takes more than positioning."
GroupM will be left with three global ad-buying firms: Mindshare, Mediacom and the newly combined entity. It also owns the programmatic ad-buying platform Xaxis.
The combined firm, which will eventually be renamed, will be led by Tim Castree, who is currently CEO of MEC. Lindsay Pattison, CEO of Maxus, was named GroupM's chief transformation officer last month.
Combining Maxus and MEC brings together the two smaller ad-buying shops that GroupM owns. Maxus, whose billings were roughly $11 billion in 2015, is the smaller of the two and has underperformed its rivals. Last year, the firm lost ad-buying duties for Fiat Chrysler in Europe and Asia.
"It's been challenging for Maxus to grow in the U.S.," said Greg Paul, CEO of R3, a consultancy that works with agencies and marketers. "They haven't built a large base of global clients" the way other agencies such as Mediacom have over the years, he added.
Mr. Clark said Maxus "continues to be successful in local markets."
MEC, which had billings of roughly $25 billion in 2015, hasn't been immune, having lost duties for AT&T, a major account, last year.
Write to Suzanne Vranica at email@example.com
(END) Dow Jones Newswires
June 01, 2017 07:39 ET (11:39 GMT)