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A strong ad market, tough peers, an increased consumer spending behavior-- both in the domestic and international markets—have been increasing the likelihood of acquisition activity among the ‘Admen’. In this backdrop, Omnicom Group Inc. (OMC - Analyst Report), one of the world’s leading global marketing and corporate communications companies, also stands to gain from strategic acquisitions aimed at fortifying the group’s business while inducing long-term profitability.
Recently, Omnicom Group's Diversified Agency Services (DAS) announced an agreement with ITOCHU Corporation and a number of venture capital funds to acquire a majority stake in Medical Collective Intelligence Co. Ltd. (MCI). MCI is a highly respected Japanese online medical communications agency, founded in 2007. It offers clients in the pharmaceutical and medical device industries with powerful online market research services and online CRM solutions.
Diversified Agency Services (DAS), a division of Omnicom, manages Omnicom's holdings in a variety of marketing disciplines, including customer relationship management, public relations and specialty communications. The division’s deal with the Japanese communication agency looks impressive as the combined strength of Omnicom's healthcare agencies with the digital capabilities of MCI is anticipated to significantly boost Omnicom's overall client offering in Japan. The acquisition is also expected to position Omnicom as the leading dedicated healthcare marketing group in Japan. ITOCHU remains a shareholder in this acquisition deal—partnering with the focal parties concerned--to grow and develop the business.
Omnicom’s key growth strategy involving acquisition of complementary companies is aimed at expanding its client base while strengthening the entrepreneurial management teams globally. The latest acquisition involves a stronger challenge for Omnicom to operate in the world's second largest pharmaceutical market. MCI's digital CRM solutions and research are well poised to capitalize on the fastest growing marketing communications sector, backed by the increased client spending on digital and interactive communications platforms.
MCI is also looking forward to further extend services throughout the Asia-Pacific region. With their online market research and detailing solutions, they plan to penetrate into the diverse growth markets of China and India, and other South East Asian countries. With this partnership with Omnicom, they foresee expansion opportunities in the U.S. and Europe with customized solutions in the significant healthcare markets. MCI has planned to persist its operation as a stand-alone agency within Omnicom in Asia, working closely with its sister healthcare companies including Targis, AgencyRx Japan and Polaris Consumer Healthcare.
Omnicom's branded networks and numerous specialty firms provide advertising, strategic media planning and buying, digital and interactive marketing, direct and promotional marketing, public relations and other specialty communications services worldwide. It directly competes with its peers, such as The Interpublic Group of Companies Inc. (IPG - Analyst Report), Publicis Groupe SA (PUBGY) and WPP pl. (WPPGY - Analyst Report).
The strategic acquisitions, clinched earlier by the company viz, Indian PR agency, Sampark, New Zealand-based TouchCast, Biz Tequila from Vietnam and Jump in the Netherlands, are quite noteworthy. Besides, strategic acquisitions in complementary businesses and increased integration, needs special mention. We believe, such deals in time, would be accretive to growth and business development.
We currently maintain a long-term Neutral recommendation on the stock. Omnicom has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).