Omnicom Reveals Earn-Out Information
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Omnicom Reveals Earn-Out Information

Omnicom Group owes around $375 million in earn-out payments, slightly more than the company estimated last month when criticism of its accounting methods surfaced.

Paul Holmes

NEW YORK, July 9—Omnicom Group—parent of Fleishman-Hillard, Ketchum, Porter Novelli and numerous smaller public relations firms—owes around $375 million in earn-out payments, slightly more than the company estimated last month when criticism of its accounting methods surfaced.
 
The revised number appeared in an investor presentation posted to the company’s website as part of a strategy of greater openness. The company’s shares responded positively to the new information, up 6.4 percent to $47.56—although the stock is still trading well below its $79.25 close on June 11, when the criticism began.
 
“I think this is a step in the right direction,” SunTrust Robinson Humphrey analyst William Warmington told reporters. “But in this type of environment, where the market has been punishing any company where any issues arise that bring into question accounting or disclosure, it’s difficult to set a time table on how quickly you can restore credibility.”
 
Omnicom now says it will pay out around $376.5 million through 2005 on acquisitions made before 2002, with that number rising to around $394 million over time. Last month, the company estimated earn-out payments would be in the $250 million to $300 million range.
 
In the new presentation, Omnicom revealed it had used earn-outs for about three-quarters of its acquisitions, and that it typically pays anywhere between 30 and 70 percent of the acquisition price up-front, with the remained spread over three to five years and dependent upon the company’s post-merger financial performance.
 
The company also provided more detail on the $844 million it spent on acquisitions last year. About half the money, $433 million, went for new deals, with earn-outs on previous acquisitions costing $203 million. Most of the remainder of the money was spent acquiring additional stakes in firms that were already part of the Omnicom family.
 
Some analysts say they would still like to see more information about organic revenue growth, which Omnicom has traditionally calculated differently than its peers.
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