Bank of America warns structural growth risks in Omnicom-IPG deal

Bank of America downgraded Omnicom from Neutral to Underperform, noting that investors are placing disproportionate emphasis on cost synergies and share buybacks linked to its acquisition of Interpublic Group, while overlooking the potential risks to the company’s long-term growth, as per a report by Investing.com.

The brokerage cut its price target on the agency to $77 from $87 and lowered its earnings estimates for the 2026-2028 period by 7% to 12%, placing its forecasts below the current market consensus.

The bank said investor attention has focused largely on potential cost savings from the deal and the prospect of higher shareholder returns, but argued that this view overlooks challenges related to growth sustainability, asset quality and capital allocation following the merger.

The bank questioned assumptions that the combined Omnicom-IPG business can deliver more than 3% annual revenue growth in 2026 and 2027, saying such expectations appear difficult to reconcile with recent performance trends at both companies.

It also expects a more extensive reshaping of the agency’s business portfolio after the merger than the market currently anticipates. Bank of America estimates that up to 15% of pro forma revenue could eventually be put up for sale as part of post-merger streamlining.

However, the bank warned that demand for some of those assets may be limited, raising the risk that parts of the portfolio could be shut down or scaled back without generating significant proceeds.

Another concern highlighted by the brokerage relates to IPG’s legacy operations. While margins have improved in recent years, Bank of America said this has occurred alongside flat or declining revenues, suggesting that margin gains may have been driven by underinvestment rather than stronger underlying performance.

The bank expects the agency to increase spending to stabilise and rebuild growth in those businesses, a move it said could weigh on margins in the near term.

Based on these factors, Bank of America revised its valuation approach and said Omnicom should trade at a discount to peers such as Publicis, reflecting expectations that its revenue growth will lag competitors in the coming years.