Bank of America downgrades Omnicom, citing growth risks in $13 bn IPG acquisition

New Delhi: Bank of America analysts downgraded advertising giant Omnicom Group Inc. to "underperform" from "neutral" on January 5, 2026, warning that potential growth challenges from its pending acquisition of Interpublic Group (IPG) outweigh the deal's anticipated benefits.

The move sent Omnicom's shares down 2.2% in premarket trading to $79.50, reflecting investor concerns over the merger's long-term implications.

In a research note, BofA analysts argued that while the $13 billion all-stock deal for IPG offers clear advantages on paper, including a low acquisition price, significant cost-cutting opportunities, and funds for share repurchases, investors are underestimating key risks.

Specifically, the firm highlighted weaker underlying organic growth, potential earnings dilution from necessary asset sales, and the requirement for substantial reinvestments in IPG's underfunded operations.

"Expectations for more than 3% annual revenue growth in 2026 and 2027 are unrealistic," the analysts stated, noting that Omnicom's growth could lag behind peers like Publicis Groupe. BofA also forecasted a larger-than-expected portfolio restructuring, with up to 15% of the combined company's revenue potentially slated for disposals. These sales could face limited buyer interest, leading to costly wind-downs with minimal financial upside.

The downgrade comes amid scrutiny of the merger, announced in late 2025, which aims to create an advertising powerhouse with over $25 billion in annual revenue. IPG, known for agencies like McCann and FCB, has been criticised for underinvestment, which boosted short-term margins but stifled revenue growth. BofA warned that addressing this through increased spending could pressure profitability in the coming years.

As part of the downgrade, BofA slashed its price target on Omnicom from $87 to $77 and reduced its earnings forecasts for 2026-2028 by 7% to 12%, placing them below Wall Street consensus. The firm also pointed to broader industry headwinds, including economic uncertainty and shifts in digital advertising, as exacerbating these risks.

Omnicom, which owns agencies such as BBDO and TBWA, has defended the IPG deal as a strategic fit to enhance scale and capabilities in a competitive market. However, the BofA note echoes concerns from some analysts about integration challenges in the consolidating ad holding company sector.

This development adds to the ongoing consolidation in the advertising industry, where firms are grappling with slowing client spending and the rise of in-house marketing teams.