In promoting breakfast cereal and laundry detergent, advertising agencies often trumpet the message that giant size is the best size. Now they are embracing the bigger-is-better philosophy for themselves. Merger mania is turning Madison Avenue agencies into megashops with clients in almost every business and bases in every major world market. In the past month alone, three huge mergers involving billions of dollars in advertising have made headlines.
The latest new, improved giant-size deal, which was unveiled last week, will join BBDO International, the sixth-largest U.S. agency, with Doyle Dane Bernbach Group (No. 12) and Needham Harper Worldwide (No. 16). Combining - annual billings of nearly $5 billion, the menage a trois is the biggest advertising group the world has ever seen--for now. Says BBDO Chairman Allen Rosenshine, who will head the new holding company, not yet named: "We are the biggest--but maybe only for ten minutes."
Nearly all the biggest advertising competitors are gobbling up rivals in what Adweek Editor in Chief Richard Morgan calls "a free-for-all." According to the American Association of Advertising Agencies, there were eight mergers in 1984, 19 in 1985 and eleven already announced in the first four months of 1986, most of them involving large agencies. Firms that once expanded by opening a new office are now more likely to buy an existing agency, picking up its client list as well as its creative talent.
Because so many of the acquisitions are taking place among the largest agencies, a top tier is developing of superheavyweights that are several times as large as most other companies in the industry. Rankings in Advertis- ing Age, a leading trade journal, show that the ten largest U.S. agencies controlled about $27 billion in advertising billings last year. That is nearly 17% of the $162 billion that was spent on ads around the world. The leader was New York City-based Young & Rubicam, with 1985 billings of $3.57 billion, followed by the Ogilvy Group ($3.3 billion), Ted Bates Worldwide ($3.1 billion) and J. Walter Thompson ($3 billion).
But the American companies are facing formidable competition from Tokyo's Dentsu (1985 billings: $3.62 billion) and London's Saatchi & Saatchi ($3 billion). Perhaps the most ravenous of all the advertising firms, Saatchi & Saatchi took over twelve companies last year. Flush with $600 million raised through a stock offering, Brothers Charles and Maurice Saatchi are prowling for more prey and are determined to build the world's largest agency. Doyle Dane Bernbach turned down a Saatchi offer before deciding to merge with BBDO and Needham; so far, Ted Bates has also ducked Saatchi's advances. Says Abbott Jones, president of the Chicago-based Foote, Cone & Belding agency ($1.9 billion): "It's hard to say where a company like Saatchi, with such deep pockets, will strike next."
Several factors are driving ad agencies into a pattern of expansion by acquisition. For one, industry profits dipped 1.5% last year, in part because the economy was sluggish and client companies curbed their advertising budgets as a cost-cutting measure. In response, many ad agencies are resorting to mergers as a way of sustaining their revenue growth.