The top five agency holding companies could face a collective bill of $1.7 billion (€1.7bn; £1.1bn) in payments for past acquisitions, according to a new report from the Wall Street Journal.
Recent consolidation by the ad giants has been funded by a mixture of upfront cash and payment plans stretching into the future. Instalments on the latter, often called earn-outs, continue for up to five years and are based on the acquired firm’s performance.
Last week, Omnicom Group admitted that it faced a further $394.1 million in earn-outs – higher than previously estimated – should its acquisitions perform as expected [WAMN: 09-Jul-02].
However, Omnicom is not alone. Interpublic Group, estimates the Journal, still owes $550m, while WPP Group has around $419m yet to pay. In total, the newspaper claims, the top five holding companies may have to find a further $1.7bn if their purchases fare as anticipated.
These liabilities have so far remained largely unseen by investors, as they have not been treated as debt on some of the companies’ balance sheets. In the wake of the Enron and WorldCom scandals, however, the rules may be changed, forcing companies to declare the scale of such payments.
Data sourced from: The Wall Street Journal Online; additional content by WARC staff