NEW YORK (AdAge.com) -- Interpublic Group of Cos. today announced it will combine the U.S. operations of Deutsch and Lowe Worldwide, with longtime Deutsch CEO Linda Sawyer overseeing the merged North American entity, ending years of speculation about a pairing of two ad agencies.
The deal means that, as expected, Deutsch's New York office will absorb Lowe's New York operations. Going forward, Deutsch's name will be known as Deutsch Inc., a Lowe & Partners Co. Globally, however, the Lowe brand remains unchanged.
The announcement confirms that Lowe New York Chairman-Chief Creative Officer Mark Wnek would not join the merged entity, but it does indicate he will move to a role somewhere else within Lowe Worldwide.
In other management changes arising from the union, Val DiFebo, previously president of Deutsch, New York, will become CEO of the combined New York operations; and Lowe's New York president, Sal Taibi, becomes partner-general manager of the new Deutsch New York. Donny Deutsch will remain chairman.
Interpublic Chairman-CEO Michael Roth said the two agencies were aligned due to their complementary offerings. "By giving Deutsch the lead role in North America and access to a strong global network, while at the same time bolstering Lowe's standing in the vital U.S. market, we believe we will create a more powerful offering and accelerate our growth."
Mr. Roth did not address the issue of cost savings as a product of the merger, but holding-company insiders have cited that as a key factor in the decision to move forward with the deal.
The New York merger comes just as Lowe was beginning to gain some real traction in the U.S., getting wins on the new-business circuit. Ad Age in 2008 named the agency comeback shop of the year.
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Deutsch, meanwhile, will hope to benefit from its new partner's presence in markets overseas, where Deutsch has never ventured. Though it has streamlined its network in recent times, Lowe globally still has a footprint of some 30 offices, some of which, such as Madrid, are booming.
The move will probably have little effect on Deutsch's Los Angeles outpost, which in recent years has proved a sweet spot, reeling in accounts such as Sony's PlayStation and Dr Pepper. That gap has narrowed of late, though, with New York attracting business from Kodak and other marketers, and the L.A. office losing General Motors' Saturn.
The moves also seem to leave largely unscathed Lowe's Toronto office and successful health-care operation based in Parsippany, N.J. Lowe Healthcare grew revenue 4.4% in 2008 to $109 million, according to Ad Age's DataCenter.
Globally, the entire Lowe Worldwide network last year saw revenue of $572 million, with the U.S. ad agency operations accounting for a small chunk, about $40 million. Deutsch, meanwhile, had 2008 revenue of $148 million.
Madison Avenue is, of course, no stranger to mergers. For Lowe, this is its fourth merger in about 15 years. But it's the first such deal for Deutsch, which has grown organically since founder David Deutsch opened its doors in 1969.
The move makes business sense, said one agency consultant.
"Think about Deutsch's client list; they have multinationals, and they need a global footprint in order to grow with them. It's more cost-effective and efficient to become a multinational through a holding company merger or acquisition than it is to buy or build multinational offices on their own."
However, culturally "they have to be careful," the consultant added. "I suspect what we'll see them do is concentrate more on making sure that they don't lose clients than going out and flirting with lots of new ones. There's been so much bad luck for [Lowe] because they've been through mergers that are right financially but not culturally. Deutsch is aggressive stylistically, so they'll have to work hard to make sure that the people who are a part of the new organization get the right Kool-Aid from Linda Sawyer."