WPP merges MEC and Maxus, redundancies and "efficiencies" probable

GroupM is merging the global operations of media agencies MEC and Maxus into "a new billion dollar revenue, media, content and technology agency" under the leadership of MEC’s CEO Tim Castree.

GroupM will now have three global media agency networks - Mindshare, MediaCom, and the new company – each with more than one billion dollars in annual revenues, said GroupM in a press statement. Currently leading the operation in Asia CEO is Peter Vogel, and Singapore operations for MEC is Allison Coley. Meanwhile, Maxus is lead by APAC CEO Ajit Varghese, and the Singapore operation is led by MD Desh Balakrishnan.

When asked if redundancies will be made to the APAC operations, a spokesperson from the company said "We do anticipate some efficiencies and the efficiencies we realise will allow us to focus resources and reinvestment in three billion dollar (revenues) media agencies."

A spokesperson from GroupM told Marketing that it is currently at the beginning of a six month transition period where Maxus and MEC "will be combined into a powerful new media, content and technology agency proposition".

"We will be carefully working through the integration over these next many months, and so it is too soon to get into granular details about specific APAC impacts," he said. He added that the name of the new company will be announced in due course and the transition will conclude by the end of the year

"There are quite few client conflicts between Maxus and MEC. Where they are, we are already in conversations with our clients to make the right fit for them. In time, we also anticipate that Essence will be leading new GroupM client relationships, he added.

Essence, a digital-first agency, is now adding traditional media capabilities and a larger geographic footprint to the agency’s existing media and creative credentials. GroupM acquired Essence in November 2015.  In time, Essence will also lead several key GroupM client relationships as part of this restructure.

GroupM also plans new investments across all of its agencies and its [m]PLATFORM data and technology capabilities, it said in a statement.

“We’re committed to improving our service to clients. These moves will give us greater focus, help us innovate, and improve our speed of delivery,” said Kelly Clark, global CEO, GroupM.

Since Clark became global CEO in October 2016, GroupM has made a number of organisational changes. Clark recently appointed Lindsay Pattison as GroupM’s chief transformation officer to lead a range of transformation initiatives.

“The leadership team at Essence is excited about the opportunities this creates for our clients and our people,” said Christian Juhl, CEO, Essence. “Our mission is to make advertising more valuable to the world; with this infusion of talent, capabilities and markets, we can do this now on a bigger stage.”

Clark named Castree CEO of MEC in November 2016.

“Maxus and MEC share common values and ambitions. Both networks have a strong local market presence and entrepreneurial drive. Together, we believe we can create an exciting new media, content and technology agency which we look forward to introducing soon,” Castree said.

“We’ve clearly signalled our ambition to transform, and we mean business,” Pattison said. “This allows us to more meaningfully invest in each agency’s future – retaining and attracting the best talent with inspiring and rewarding workplaces, creating differentiated cultures and approaches, and sharing in a focus on helping clients win.”

The future of media agencies

Meanwhile in a joint statement, Paul Davies and Richard Bleasdale, APAC managing partners at The Observatory International said Martin Sorrell is known to  be a collector  of brands and companies. And for the 30 over years he has been in charge of WPP, it has been very rare that WPP merges companies. He has also rarely combined companies into formal entities or “groups". However in a recent interview, Sir Martin Sorrell also said that WPP was too complex and not client-focused enough.

"As such, this could be seen as a strategic move by WPP and we believe in reality, it is a combination of operational necessity and strategy," said the two, adding:

MEC and Maxus are the weaker networks with GroupM - so they likely lack some elements of scale and capability.

Both have performed averagely and combine this with the increasing pressure to move to digital, where good margins have been harder to find, the mediaplooza over the last two years, and the issue of media rebates, it is no surprise there is now squeezed margins and lower growth.

This merger or consolidation will also lead to cuts in operational costs across the board including people - which represent around half or more of a media networks cost. Plus, it creates a clear space for Essence to step into, said Bleasdale and Davies.

The two added that this is going to be a trend going forward as the industry generally recognises that it is over complicated and difficult to navigate - especially as marketers are increasingly calling for simplification. They added:

"It is not surprising to find most of the global holding companies looking to cut costs, whether positioned as restructuring, integration or similar, and driving more simplicity and efficiency into an increasingly turbulent and disrupted industry."

Sorrell has also been quoted as wanting to actively address cannibalisation stating: "If you don’t eat your own children, somebody else will.”

No doubt, the media business today, is slightly different due to the nature of the business model, increasing levels of technology needed, the data/analytical skills and the scale required. Going forward, we will find a lot less media companies in a market than any other marketing services companies, said the two.

The key challenge we perceive is one of leadership. We perceive that too many of the agency leaders do not appear to have the experience, capabilities or skills to lead the integration needed.

Agreeing to the point Darren Woolley, global CEO of TrinityP3 added that the move is not unexpected given the other mergers the market recently saw within holding companies. He added that going forward, the market can expect a lot more mergers.

“Many suspect this is because the media agencies and specifically believe trading desks were driving growth. Since the ANA K2 report last year, Pivotal Research reported successive drops in holding company earning or profit. These mergers are an attempt to reduce cost through back end efficiencies and economies of scale. And let’s be honest, mostly the multiple media agency brands were a way to manage client conflict,” he said.