In dealmaking circles, the merger that will create the world’s biggest advertising firm is notable for what it lacks: the participation of a single large investment bank. To sort out the details of their proposed union, Omnicom Group (OMC) worked with Moelis, a New York-based boutique bank, while Publicis Groupe (PUBGY) retained the services of Rothschild, the storied Paris-based merger adviser. The two will split as much as $70 million in fees, according to researcher Freeman & Co.—a big check for firms of their size. They’ll also get a bump in the widely scrutinized investment banking industry league tables.
The structure of the Publicis-Omnicom merger—a stock-based transaction without a big financing component—made it boutique-friendly, says Jeff Davis, a managing director at consulting firm Mercer Capital. “The reason we didn’t add more advisers is because we didn’t need them,” Omnicom Chief Executive Officer John Wren said at a July 28 press conference in Paris. “Maurice and I settled many of the issues,” he added, referring to Publicis CEO Maurice Lévy. Structured as a merger of equals, the combination didn’t require the issuance of debt or new equity, which meant there was no need for large banks’ financial muscle or their relationships with institutional investors. Lévy also credited Moelis and Rothschild for keeping news of the deal from leaking until July 26, when Bloomberg News reported the discussions.
Proponents of smaller banks say their focus on merger advice allows them to provide impartial counsel to corporate executives, while giants such as Goldman Sachs Group (GS) and Deutsche Bank (DB) contend that their suite of financing products and broad role in the financial markets provide a key advantage.
The deal, which will create a company with a market valuation of more than $30 billion, is the third big transaction Moelis has been involved in this year. The firm, founded in 2007 by UBS (UBS) veteran Ken Moelis, advised H.J. Heinz in its $28.8 billion takeover by a group including Warren Buffett’s Berkshire Hathaway (BRK/A). The bank also worked with Life Technologies (LIFE) on its pending $13.6 billion acquisition by Thermo Fisher Scientific (TMO). Moelis is ranked 10th among takeover advisers globally this year based on combined merger value, working on 43 deals valued at $75.5 billion, according to data compiled by Bloomberg. It and Lazard (LAZ) are the only members of the top 10 that aren’t large global investment banks.
Rothschild, a banking dynasty that traces its roots to the 19th century, is ranked 13th among takeover firms, advising on 102 transactions valued at $62 billion, the data show. This year the firm counseled Joh. A Benckiser on its $10 billion takeover of coffee maker D.E Master Blenders.
Advertising firms and other service businesses also typically don’t need as much debt as manufacturers or other companies that deal with physical goods, he explains. While the deal is a boon for both Moelis and Rothschild, it doesn’t auger significant change in the banking world’s hierarchy. Says Davis: “The investment banks that have the big balance sheet to use as part of the transaction are hardly going to fade into the sunset.”