Depending on where you sit, IPG’s $13B merger with Omnicom is either about doubling-down on their massive data and tech assets (Omni and Acxiom) in the irreversible shift to AI-driven marketing, or it’s a straight-up survival play. We’re not here to go over that old ground again.

All M&A is wrapped in eye-catching pronouncements. Then stuff actually starts happening that tells its own incontrovertible story. Last week saw the sale of IPG’s subsidiary of 23yrs, R/GA, to private equity firm Truelink Capital. Similarly, late 2024 saw its divestiture of HUGE to Hero Digital backed by another PE firm, AEA Investors. What is it that these investment funds see in these two legendary agency brands that their owner does not? The regulators may yet prevent the Omnicom mega merger, and these disposals were publicly signalled last summer, so they must surely have been happening regardless.

Both enjoyed meteoric growth – Huge’s headcount grew more than ten-fold under IPG – and achieved deserved stardom, then both hit well-documented turbulence. They did this during wave after wave of agency consolidation across the HoldCos, although IPG continued to stand behind its individual brands. All these networks share their quarterly accountability to Wall St, however, and herein perhaps lies the answer.

Many of us have worked within the networks. Their operating models have naturally changed over time, but the constant noise that comes from network agency managers is the unrelenting pressure on margins. We’d all love organic growth, but markets largely dictate that. Everyone needs to be able to live within their means, however, and that means hitting prescribed margins.

In a world changing at break-neck speed, how do agencies keep pace without investing and experimenting? How do they invest and experiment when they’re operating in 12-weekly business cycles with a margin target to hit?

This is not to say that being a private company beats being a subsidiary of a public HoldCo. The commercial terms of business are just very, very different. PE firms only buy so that one day – generally 4-5 years later – they can sell and return two to three times their investment to their fund. It’s about growing equity value not managing margins. Equity value is a function of three variables: profits, a deal multiple and debt. Growing profits is essential, and the more consistent the growth the better, but this is a medium-term play. Multiples are complicated beasts, driven by countless factors but fundamentally they boil down to scarcity and desirability, which create competitive pressure for potential buyers. Never forget debt and we should never forget 2008 and what happened to PE-backed agencies with too much of it, but it’s the cheapest source of capital and used carefully it can help fuel growth in equity value.

With Truelink’s backing, R/GA has secured a $50 million innovation fund, which will allow it to:

  • Develop AI tools for personalised marketing
  • Explore agile talent models
  • Expand into tech and healthcare

R/GA also aims to shift towards outcome-based pricing, where fees are tied to performance rather than traditional service-based billing, and blending AI with human creativity to deliver smarter, more engaging client experiences rather than simply to keep up with the race to the bottom on efficiency-based procurement.

Would R/GA be doing this within IPG or any of the networks?

It feels like the advertising industry reaches pivotal new junctures with alarming frequency, with the prevailing strategy epitomised by Omnicom/IPG, banking on sheer size and seamless integration to win the day. While we can look back at the multitude of mid-sized publicly quoted agencies of the 1990s that lit up the industry like AMV, they weren’t operating in this new era, so we can’t know how viable an alternative they might have proved. However, scaled agency groups with private equity-backing focusing on their own formula of moving fast, and owning the niches might have at least as defensible a position. Hero/Huge and R/GA will be fascinating barometers and others may soon follow.