The banks working on the largest advertising merger in history will probably miss out on the bulk of $70 million in fees after Publicis Groupe SA and Omnicom Group Ltd. terminated talks on a combination.
Bankers from Rothschild, working with Publicis, and Moelis & Co., which advised Omnicom, led a small army of advisers on the deal that also included Morgan Stanley and Bank of America Corp. Instead of as much as $70 million the firms would have shared for a successful deal, the banks are likely to receive $2 million to $4 million each in retainer fees, according to research firm Freeman & Co.
Paris-based Publicis and New York-based Omnicom yesterday announced they would end discussions on the $35 billion merger they announced in July of last year as they couldn’t overcome obstacles. The deal would have vaulted the combined business past London-based WPP Plc to make it the world’s largest advertising company, bringing agencies such as Saatchi & Saatchi and BBDO under the same roof.
“The bankers won’t walk away empty-handed, but an element of the fee would depend on the successful completion of the deal,” Ismail Erturk, a senior lecturer on banking at Manchester Business School, he said in an interview today. The actual payment will be based on the specific agreement between the companies and the banks, he said.
Unlike law firms, which typically bill by the hour, investment banks advising on mergers generally receive substantial fees only if deals are completed. That business model makes failed transactions costly, especially for small firms that might work on only a few large transactions in a year.
The Publicis-Omnicom combination was unusual in being shepherded at the outset by Rothschild and Moelis, and not by a single large investment bank. The other banks advising, which included BNP Paribas SA, Citicorp Inc., Deutsche Bank AG, and UBS AG, joined the deal later on.
The deal’s failure may be most significant for Moelis, the New York-based boutique founded in 2007 by UBS veteran Ken Moelis and which recently went public. Publicis-Omnicom was the fifth-largest transaction on which the firm has ever advised, and the second-largest since 2008, according to data compiled by Bloomberg.
Moelis advised HJ Heinz Co. on its $27.4 billion takeover last year by a group that included billionaire investor Warren Buffett’s Berkshire Hathaway Inc.