Omnicom Group: 2008 Year in Review

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(This analysis written as part of Ad Age's Agency Report 2009.)

Omnicom Group reported $13.36 billion in worldwide revenue in 2008, up 5.2% from $12.69 billion in 2007.

Omnicom in 2008 dropped to No. 2 in worldwide revenue among agency companies, behind WPP ($13.60 billion). WPP leapfrogged Omnicom with revenue from Taylor Nelson Sofres, a market research company WPP bought in October 2008.

Omnicom in 2008 generated 42.9% of revenue from what it calls "traditional media advertising." The rest came from a range of marketing services. The New York-based company at year-end 2008 employed about 68,000 people, down from 70,000 at year-end 2007. Omnicom employed 66,000 people at year-end 2006.


Omnicom holdings include:

• Three global advertising networks: BBDO Worldwide, DDB Worldwide Communications Group and TBWA Worldwide, each of which offers various marketing services and specialty communications.

• Local, regional and national U.S. ad agencies: Includes Arnell Group; Cutwater; Element 79; Goodby, Silverstein & Partners; GSD&M Idea City; Martin Williams; Merkley & Partners; Roberts & Tarlow; Rodgers Townsend; Zimmerman Advertising.

• Global creative boutique: majority stake in 180 Amsterdam/180LA.

• Media agencies (Omnicom Media Group): Two global networks, OMD and PHD, and Prometheus Media Services, a spinoff of OMD; media specialist agencies: Full Circle Entertainment (branded entertainment), Icon International (barter), Ketchum Directory Advertising, Novus Print Media Network, Outdoor Media Group, Resolution Media (search marketing), Singer Direct (insert media buying and management).

• Customer relationship management: Promotion marketing and sales promotion (Alcone Marketing Group, TracyLocke); direct marketing ( Rapp, Targetbase); branding (Interbrand); digital (, Organic).

• Public relations/public affairs: PR networks Fleishman-Hillard, Ketchum and Porter Novelli; specialty shops including Brodeur Worldwide, Clark & Weinstock, Gavin Anderson & Co. and Cone.

• Specialty communications: Healthcare agencies; recruitment agency Bernard Hodes Group; business-to-business agency Doremus.

Randall Weisenburger, Omnicom's exec VP-CFO, in February 2008 said Omnicom overall had about 2,500 agencies in 120 countries.


Omnicom's worldwide revenue rose 5.2% to $13.36 billion in 2008 from $12.69 billion in 2007.

In its February 2009 10-K, Omnicom broke down the 5.2% growth this way: "1.3% was related to changes in foreign exchange rates and 1.0% was related to the acquisition of entities, net of entities disposed. The remainder, 2.9%, was organic growth." Organic revenue factors out currency changes and acquisitions.

Omnicom reported 2008 net income of $1.0 billion, up 2.5% from $975.7 million in 2007.

Omnicom had an operating margin of 12.6% in 2008, down from 13.1% in 2007. Operating margin is operating profit divided by revenue.

Mr. Weisenburger commented to analysts about operating margins in February 2009: "We were about 12.6% margins for '08. I've said it a couple of times: Certainly our objective is to try to manage and hold those margins. You know, depending upon the overall economic environment, thinking flat to say minus 50 to 100 basis points of margin" -minus 0.5 to 1.0 percentage points- "I think would be pretty strong performance, again depending upon that overall economic backdrop."

Omnicom discussed operating performance in its February 2009 10-K: "During the second half of 2008, we experienced a decline in the rate of growth of our revenue compared to the second half of 2007 and, due to rapidly changing economic conditions, we have less visibility than we historically have had regarding client spending plans in the near term.

"During previous periods of economic downturn," the 10-K continued, "our industry experienced slower growth rates and industry-wide margin contractions. Accordingly, in the fourth quarter of 2008, in response to reductions in client spending, we took action to reduce our salary and service costs by reducing incentive compensation and through actions to limit our discretionary spending. Additionally, in anticipation of reductions in client spending in 2009, we reduced our work force in the fourth quarter of 2008 and we incurred expenses related to severance benefits."

The 10-K said: "Continued economic uncertainty and reductions in consumer spending may result in further reductions in client spending levels that could adversely affect our results of operations and financial condition. We intend to continue to closely monitor economic conditions, client spending and other factors, and in response, will take actions available to us to reduce costs, manage working capital and conserve cash. In the current economic environment, there can be no assurance as to the effects of future economic circumstances, client spending patterns, client credit worthiness and other developments on us and whether and to what extent our efforts to respond to them will be effective."

Standard & Poor's in February 2009 put Omnicom on CreditWatch, foreshadowing a potential ratings downgrade.

Federal and state courts in 2007 and 2008 ruled in Omnicom's favor on 2002 shareholder lawsuits related to Omnicom's placement of digital agency interests into a holding called Seneca Investments. In January 2008, U.S. District Court in New York granted Omnicom's request for summary judgment, dismissing all claims and directing the court to close the case. In February 2008, plaintiffs filed a notice of intent to appeal that decision to the U.S. Court of Appeals.

Omnicom said in its February 2009 10-K: "The appeal has been fully briefed. The parties await a date for oral argument before the Court of Appeals.... Currently, we are unable to determine the outcome of the appeal and the effect on our financial position or results of operations. The outcome of any of these matters is inherently uncertain and may be affected by future events. Accordingly, there can be no assurance as to the ultimate effect of these matters."

In a related shareholder suit wending its way through New York state courts, the New York Supreme Court's Appellate Division in September 2007 ruled for Omnicom and dismissed shareholder claims. In January 2008, the court denied the plaintiff's efforts to appeal. Omnicom said in its February 2009 10-K: "We believe the matter is concluded."


Omnicom in 2008 was the No. 1 holding company in new business as measured by net equivalent revenue (anticipated annualized revenue from new business), according to the tally of J.P. Morgan analyst Alexia Quadrani.

The agency company in 2008 had $82 million in net equivalent revenue from new business, Ms. Quadrani calculated. To arrive at net equivalent revenue, Ms. Quadrani weighted gains and losses based on whether the billings in question were creative or media.

J.P. Morgan aggregates account shifts noted in press reports, but it doesn't claim its new-business tally to be all-inclusive, particularly in marketing services and outside the U.S. and U.K.


Omnicom President-CEO John Wren in February 2008 said Omnicom had more than 5,000 clients.

Regarding top clients, Omnicom said in its February 2009 10-K: "Revenue from our single largest client represented 2.8% of our worldwide revenue in both 2008 and 2007. No other client represented more than 2.1% in 2008 or more than 2.4% in 2007. Our ten largest and 100 largest clients represented 16.7% and 47.4% of our 2008 worldwide revenue, respectively, and 16.7% and 46.2% of our 2007 worldwide revenue, respectively."

Elsewhere in its February 2009 10-K, Omnicom said its 100 largest clients "collectively represented 47.2% of our 2008 consolidated revenue," not 47.4%.

Omnicom's top 100 clients on average were served by more than 40 Omnicom agencies in 2008 and in 2007, according to Omnicom 10-K filings.

Regarding 2006, Omnicom said in its early 2007 10-K: "Revenue from our single largest client represented 3.6% of our worldwide revenue in 2006 and 4.0% in 2005. No other client represented more than 2.9% in 2006 or 2005. Our ten largest and 100 largest clients represented 18.3% and 46.2% of our 2006 worldwide revenue, respectively, and 18.5% and 44.6% of our 2005 worldwide revenue, respectively."

Omnicom shops have worked with Chrysler units since 1926, when Chrysler hired ad agency Ross Roy (now folded into BBDO). After Daimler bought Chrysler Corp. in 1998, Chrysler consolidated at Omnicom in 2000.

DaimlerChrysler was Omnicom's largest client in 2005, when it accounted for about 4%, or about $419 million, of Omnicom revenue. That year, Omnicom's 10-K noted, its largest client was "served by more than 100 of our agencies."

Ad Age has determined that Chrysler represented something more than half of Omnicom's DaimlerChrysler revenue in 2005; Daimler Mercedes-Benz accounted for the rest. So the Chrysler wing of DaimlerChrysler effectively was Omnicom's top client in 2005.

DaimlerChrysler remained as Omnicom's largest account in 2006, accounting for about 3.6% of revenue; the Chrysler side represented less than half of that, according to Ad Age's analysis.

Daimler sold Chrysler to private-equity firm Cerberus Capital Management in August 2007, ending DaimlerChrysler's reign as top client.

Amid the deep worldwide recession, Chrysler's status as a corporation was in flux as Ad Age produced Agency Report 2009 in late April 2009.

Chrysler remained a significant revenue source for Omnicom in 2008, accounting for a bit less than 2.1%, or a little less than $281 million, of Omnicom's worldwide revenue, according to Ad Age's analysis.

But amid the growing recession and global financial crisis, Chrysler's Omnicom work plunged from fall 2008 through spring 2009. Omnicom's BBDO Detroit cut 22% of its staff, 145 jobs, in November 2008 as Chrysler slashed spending.

An Omnicom spokeswoman said in April 2009: "We continue to provide great services and creative to our client. Chrysler has not been our largest client since 2005. In 2009, the account will represent less than 1% of revenue. We have taken steps to minimize exposure if bankruptcy were to occur."

J.P. Morgan's Ms. Quadrani in spring 2009 estimated Omnicom 2009 revenue at $11.9 billion, down a bruising 10.9% amid the weak economy. That implies the Chrysler account, at less than 1% of revenue, would bring in less than $119 million�well below half its 2008 contribution.

The good news for Omnicom is its diverse global client base, which includes a garage full of auto accounts (including Nissan, BMW, Mercedes-Benz, Volkswagen and, until March 2009, Hyundai).


For 2008, Omnicom said, "traditional media advertising" represented 42.9% of worldwide revenue and grew by 4.9% over the prior year. "Customer relationship management" represented 38.1% of revenue and grew by 9.5%. Public relations represented 9.5% of revenue and fell by 0.4%. "Specialty communications" represented 9.5% of revenue and fell by 2.7%.

Omnicom in February 2007 revealed a few details about the specialty communications sector: Mr. Weisenburger said healthcare accounted for "I'd guess the cuff" of that sector's revenue. Recruitment advertising, Bernard Hodes, is "the bulk of the balance" of specialty communications, he said. Mr. Wren added that recruitment work at that point represented about 2% of Omnicom total revenue. Recruitment is "the cyclical part of the specialty" communications sector, Mr. Wren said.

Mr. Weisenburger in July 2007 offered an alternative calculation of the size of Omnicom's healthcare practice, saying it accounts for "probably 8.5% of [specialty communications'] 10%," implying healthcare is about 85% of the specialty sector.

Omnicom in 2008 generated 51.6% of revenue from the U.S.; 32.2% from Europe (including 9.9% from the United Kingdom); and the rest (16.2%) from other regions.

U.S. revenue grew by 2.8% in 2008, vs. growth of 8.2% in 2007 and 7.8% in 2006.


Omnicom said it completed 12 acquisitions in 2008 and made additional cash investments in companies in which it already had an ownership interest, "none of which were material to our consolidated financial position or results of operations." Omnicom paid $313.3 million for these acquisitions and investments.

Omnicom in 2008 also made $178.9 million in contingent purchase price payments related to acquisitions done in prior years.

So Omnicom in total paid $492.2 million in 2008 for acquisitions, additional investments and earn-outs.

Omnicom completed 13 acquisitions in 2007 for $160 million. It also made additional investments of $59 million in companies in which it already had an ownership interest. Finally, it paid $159 million in earn-outs on earlier acquisitions. Total amount paid in 2007: $378 million.

Omnicom made 16 acquisitions in 2006 and made additional investments in some companies where it had an ownership stake. Amount paid in 2006: $152.8 million. Omnicom also paid $158.6 million in earn-outs for deals done in earlier years. In total, Omnicom in 2006 paid $311.4 million in cash, stock and earn-outs.

Omnicom's 2008 deals included:

First-quarter 2008:

• A Vista Events, an event designer and producer in Beltsville, Md.; part of Radiate Group network.

• Direct shop Kern Organization, which was to remain an independent brand operating under Rapp. Kern, based in Woodland Hills, Calif., specialized in customer acquisition and business-to-business lead generation. Bought in February 2008.

• Lew'Lara, an ad agency in Brazil; rebranded as Lew'Lara/TBWA, making it the flagship agency in Brazil for TBWA Worldwide.

• Majority stake in Shift, a digital consultancy in New Zealand. Shift specialized in website development. It was to work with TBWA, Tequila and, expanding the TBWA Worldwide network's digital offering. Stake bought in February 2008.

In January 2008, Omnicom's BBDO Worldwide took "a significant minority stake" in Shunya Communications Group, an integrated communications company in China.

Second-quarter 2008:

• Sterling Brands, a brand consultancy in New York and San Francisco.

Third-quarter 2008:

• Barefoot, an interactive-marketing agency in Cincinnati; part of BBDO Worldwide's Proximity network.

• Paul Wilmot Communications, a New York PR agency focused on fashion and luxury goods; part of Fleishman Hillard.

• TRO (The Russell Organization), an experiential marketing and events agency in England; part of CPM's experiential services delivery network.

• The Eleven Agency, a field-marketing communications company focused on sales training and other services, based in Irvine, Calif.; part of GMR Marketing.

• Tarek Nour (TN Holdings), a marketing and corporate-communications venture in Egypt; 49% stake (bought by Omnicom's DDB network).

Fourth-quarter 2008:

• Access Communications, a PR agency with offices in San Francisco and New York; part of Ketchum network.

• New Performance, a healthcare ad agency in Munich; rebranded as CDM Munich; part of Cline Davis & Mann network.

• Yellowwood Future Architects, a marketing and brand strategy agency in South Africa; founded in 1997; part of TBWA/South Africa in TBWA Worldwide network.
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