The Trouble With Mergers

NEW YORK The bad rap on agency mergers is well earned — so much so that Interpublic Group CEO Michael Roth won’t use the word to describe last week’s union of Lowe and Deutsch, which he instead dubs an “alignment.”

The myriad complicating factors associated with mergers include an inevitable clash of cultures, agendas and egos — particularly among leaders — turf battles, an identity crisis and concern among clients that their agency is distracted. “They start viewing anything that goes wrong” on their account as stemming from the merger, said a source. “It puts you on watch.”

On the surface, the Lowe-Deutsch combination appears less complicated than some past Lowe mergers, given that the footprints of the two shops only overlap in the U.S., where Deutsch has two offices and Lowe one. Also, instead of appointing joint leaders or creating a joint name, IPG put Deutsch’s Linda Sawyer in charge of running North America (as CEO) and stuck with the Deutsch name. By year’s end, Lowe New York will be folded into Deutsch’s office here, which naturally will result in layoffs.

So, while the scale and complexity of this union pales in comparison to the worldwide merger of Lowe and Ammirati Puris Lintas in 1999, questions remain about the execution. How will the New York-based Sawyer gel with Lowe worldwide CEO Michael Wall and worldwide chairman Tony Wright, who work out of London? And how will Roth deal with now having three direct reports — Wall, Wright and Sawyer — from a relatively small global shop with nearly $650 million in revenue?

The IPG chief shrugged off the latter question in an interview with Adweek, saying, half jokingly, “Oh, I have thousands of direct reports.” Of course, during the honeymoon phase, the leaders of the respective agencies are heaping praise upon each other. Wright described Deutsch as an “incredible brand and an incredible culture,” and Sawyer said Lowe was the “perfect complement” to Deutsch.

Roth and Wright also cited initial client support for the Lowe-Deutsch move, with Wright mentioning top Lowe clients such as Unilever and Johnson & Johnson. Long term, however, the clients of the agencies will be sensitive to any dropoffs in service, particularly if they relate it to the merger, according to sources.

“They always wrongly make the assumption that the clients are okay with it. Just because a client doesn’t leave at the onset” of a merger, doesn’t mean that the client buys into it, said a source. Added an executive in the Lowe-APL merger: “Clients don’t like being flipped like baseball cards. The top client [exec] at UPS told me, ‘I’m tired of being treated like a chip in some grand game of poker IPG is playing.’ He gave us a shot to keep the account, which we did. But the day he retired — a year or two later -m they fired us. Clients have long memories.”

A focus on numbers — how many offices will we have; how much combined revenue; what will we save on overhead costs? — is integral to any merger discussion, with finance execs weighing in throughout the process. Those figures don’t necessarily drive such moves, but they’re part of the decision-making process. What such material concerns fail to address, however, is the human element in the puzzle, which sources describe as the single biggest impediment to a merger.

As one source put it, “Balance sheets merge, manufacturing can merge. But people don’t merge. For years – forever — people will tell you what side they were on before the merger. When there are sides, there is opposition.” Said another: “People are people and you can’t avoid the human factor.”

Squabbling between staffers from different camps was a significant obstacle in the 1986 merger of Doyle Dane Bernbach, a street savvy New York shop, and the homey, Midwestern Needham Harper & Steers. This collision of two starkly different cultures resulted in top management turnover, client defections and nasty turf wars, which DDB chairman emeritus Keith Reinhard recalled in a 1998 Adweek essay about the formation of Omnicom Group that he co-wrote with BBDO’s Allen Rosenshine.

“‘We don’t do things like that here,’ DDB people would tell Needham people without realizing it was a new here here. On the other side, Needham people went around saying, ‘Our guy is in charge. We have swallowed the big fish. We will Needhamize them now,'” Reinhard wrote. “Beyond ego and turf, there was the issue of identity. In the merger business, one and one does not make three. It makes zero. Everyone knew who DDB and Needham were. But nobody knew who DDB Needham was.”

For now, the identity question seems less germane to the Lowe-Deutsch hookup, at least in the U.S., where Deutsch becomes the dominant force. The primary leaders of the  combined New York operation — CEO Val DiFebo and returning CCO Greg DiNoto — are Deutschers, though Lowe New York president Sal Taibi will assume the role of gm  and partner.

As one search consultant sees it, Deutsch has “subsumed” Lowe in the U.S. “There’s no Lowe, it’s all Deutsch.