The Deutsch-Lowe Deal Worst-Case Scenario

Interpublic ignored my advice of a couple of days ago and merged Deutsch and Lowe into a single global agency. Management is supposed to consider the worst-case scenario in mergers before they happen, and IPG CEO Michael Roth gave a nod to that in Adweek.

So let’s examine the path in front of the combined shop, and ask the question: How could this go wrong?

The first mistake has already been made: the name of the new agency is “Deutsch Inc., a Lowe & Partners Company.” Really, IPG, is this the best you could come up with? Aren’t you guys supposed to be good at branding? Do not expect this name to survive. It’s ridiculous. It’s too difficult to say. Plus, it begs a question — is this agency Deutsch or is it Lowe?

IPG had the chance to ditch the Lowe brand completely. Frank Lowe has been gone for years. Nobody in the U.S. cares about the Lowe brand. The agency should have been called “Deutsch” (or “Deutsch/Lowe” at the least).

Now look at the reporting structure between Linda Sawyer (North American CEO of Deutsch Inc.), Lowe CEO Michael Wall, Lowe Worldwide Chairman Tony Wright and IPG chief Roth:

Ms. Sawyer, who previously reported to Michael I. Roth, chairman and chief executive at Interpublic in New York, will now report to Mr. Roth as well as to Mr. Wright and Mr. Wall at Lowe.

So, er, Sawyer had one boss (nobody counts chairman Donny Deutsch as her “boss” any more) and now has three. This will make it easier for her to run the newly engorged Deutsch … how?

Third, there’s a culture clash waiting to happen. The Deutsch management team have mostly known each other for years if not more than a decade. Deutsch has grown on its own wins and its own organic growth. It’s a well-defined, cohesive agency that only has a track record of success. (The in-joke at Deutsch used to be that it was staffed entirely by gays and Jews, such was their sensibility.) But now Deutsch is marrying a rag-tag bunch of failed agency brands scattered hither and yon, which carry a British name. In the Adweek interview, Roth alleges that Lowe and Deutsch have similar cultures. Based on their histories, this cannot possibly be true. Here’s what Lowe looks like, per The NY Times:

Interpublic operates Lowe & Partners Worldwide as more of a confederation of autonomous, creatively focused agencies than a top-down global worldwide agency network with a headquarters and offices. Reflecting that, some offices kept parts of their original names, among them Lowe Brindfors in Stockholm.

Does that sound anything like Deutsch? Not, it does not.

Analysts are underwhelmed by the merger. BMO Capital’s Dan Salmon noted there might be some back-office savings (ie layoffs of duplicated jobs):

Downside scenario: Deutsch joins a long list of agencies to merge into Lowe with limited success due to culture clashes. Lowe’s history suggests the downside scenario is more likely, …

Salmon says Lowe has been profitable of late, so I stand corrected on that issue. Matt Chesler of Deutsche Bank, however, argues that Lowe New York was probably not profitable:

… agency mergers tend not to happen from a position of strength, and specifically that this one implies a faltering turnaround at Lowe. While these concerns are understandable given history (e.g., Lowe/Lintas), we note that very little is actually changing apart from Deutsch taking over the NY office of Lowe (the only one of Lowe’s 70+ worldwide offices that will close).

the “merger” simply formalizes a working relationship that has existed for a couple of years. And since client overlap is minimal, IPG might as well go ahead and reduce some back-end costs as Lowe NY is probably too small for its O/H due to past client losses. Any NT savings (real estate optimization in NY, redundant mgmt) should be minimal in our opinion.

The argument in favor of the merger is that it gives Deutsch a global platform to grow its client base. On paper, that is true. But Sawyer et al are in for a surprise if they need to service one of their Deutsch New York clients with Lowe’s jigsaw puzzle of European offices.

Good luck, guys. You’ll need it. This guy has it right.

• Related:
• Why IPG Should Not Merge Deutsch and Lowe