Why Dentsu Married McGarry

Japanese Giant Expands Presence in the U.S., Indie Gets Growth Prospects

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NEW YORK (AdAge.com) -- In early June, Tim Andree, the head of U.S. operations for Japanese ad giant Dentsu, picked up the phone and dialed John McGarry, ad veteran and CEO of Madison Avenue shop McGarryBowen.

The two had never spoken before, but Mr. Andree -- a career client turned agency honcho -- was eager to mine Mr. McGarry's more than four decades of experience in the business, mostly at Young & Rubicam in the days before the agency turned itself over to Martin Sorrell and WPP Group.
John McGarry, CEO of McGarryBowen
John McGarry, CEO of McGarryBowen

There was no talk of a deal between the two CEOs that day. But when what was supposed to be a brief chat turned into a three-hour discussion, it was clear that the seeds of a partnership were already planted. "At the end of that conversation we realized that we better keep talking," Mr. Andree said.

Indeed they did, and that culminated in last week's announcement that Dentsu's U.S. arm, Dentsu Holdings USA had secured an all-cash deal to acquire New York-based McGarryBowen. Both parties declined to disclose terms.

At first blush, the pairing of the 107-year-old Japanese behemoth and the 6-year-young New York-based indie shop is an unlikely one, especially given that McGarryBowen hasn't been for want of buyers.

Rapid rise
Founded in 2002 by Mr. McGarry and his partners -- Gordon Bowen, formerly of Ogilvy & Mather, and Stewart Owen, who has held top roles at Y&R and Landor -- the shop in short order has amassed a coveted roster of blue-chip clients in industries from technology to travel, such as J.P. Morgan, Hewlett-Packard Co., InBev, Kraft Foods, Chevron, Reebok, Marriott International and Walt Disney Co. The agency has some 235 employees and a digital arm dubbed Continuity. It posted $51 million in revenue last year.

According to Mr. McGarry, McGarryBowen has been courted at one point or another by every major holding company but "the answer was always no." The timing was off, the fit wasn't right -- it was always something. "But in the back of our heads, we knew we were going to have to do something" in order to grow, he said.

Growth is something Dentsu -- the largest worldwide agency, with more than $2 billion in revenue -- can afford McGarryBowen. Its foothold in the East is surely a boon for the smaller shop's multinational clients.

There are even a few existing client synergies between the two agencies, with Pfizer, HP and Disney.

Key to the talks was the promise that Mr. McGarry, 68, would remain with the merged agency. A renowned expert at developing and maintaining long-lasting marketer relationships, his personal ties to the senior-most executives at McGarryBowen clients is crucial.

No retirement yet
"I guarantee you we would not have acquired the company ... without the idea that he's staying in place for the foreseeable future," Mr. Andree said. "I don't think the words 'retirement' or 'slowing down' are in his lexicon. I get e-mails from him at one and two in the morning."

Mr. McGarry said he's not going anywhere. "They'll have to drag me out feet first, kicking and screaming."

The marriage also makes further sense when you consider Mr. McGarry's familiarity with Dentsu, which he visited numerous times while leading global operations for Y&R. Dentsu owns a minority stake in Dentsu Y&R, a Tokyo-based Asian ad network that has offices in Taipei, Taiwan; Bangkok, Thailand; Singapore; and Kuala Lumpur, Malaysia.

For Dentsu, the advantage of the deal is clear: As it struggles to penetrate the U.S. market, it benefits from the profile of a known U.S. agency brand and adds a host of venerable clients to its roster to boot.

Still, Dentsu -- which derives 90% of its revenue from Japan -- certainly has a long road ahead before it can give more-established stateside players such as Omnicom Group, WPP or Interpublic Group of Cos. a run for their money.

Concurrent with its acquisition announcement, Dentsu posted poor financial results. Net income tumbled 43% in the first half of the year, largely due to economic uncertainties leading to client pullbacks.