Will Google takeover the likes of WPP?

Andy Collins, senior partner at Results International, M&A advisers to the marcoms sector, asks whether tech giants such as Google and Apple could be poised to invest in marketing networks like WPP.

The technology and marketing communications sectors are increasingly overlapping. Each is buying into the other’s space. This convergence is well-documented and we will be seeing a lot more of it.

As marketing directors are getting to grips with the reams of data thrown up by consumer interactions, it’s quite likely that in the relatively near future, their jobs will have as much a tech focus as that of the CIO/CTO.

This has interesting implications for boardrooms around the world and for the financials of some the big companies in each sector.

Many of the leading marcoms networks are operating on multiples of 6 to 8 Enterprise Value to EBITDA [a widely used valuation multiple to assess the relative value of companies] while a lot of the tech firms show substantially higher numbers. Apple is at 10, Facebook a giddy 27, Google on 10.7 and Amazon on 51 though Microsoft is a little more pedestrian at 6.6. When it comes to market capitalisation, Microsoft is a £161 billion company, Google £127 billion, Amazon £66 billion and Apple £362 billion. In comparison, the leading marcoms networks look like small fry with WPP at £10.4 billion and Omnicom at £8.4 billion.

A good number of these tech firms have substantial cash reserves sitting in the bank. Given this, might some of the big marcoms groups find themselves vulnerable to a takeover by a player such as Google, Apple or Microsoft? There may well be a strong business case to be made for investing this cash in the marcoms sector.

While it’s unlikely to be Microsoft following the poor performance of its 2007 acquisition of ad platform aQuantive which has failed to help it compete with Google, Google may indeed be tempted to enter further into the sector. As marcoms businesses are getting increasingly digitally savvy they may present an attractive proposition to Google as well as to other big tech players who are already close to the marcoms world.

The challenges of leadership succession at the major marcoms networks are well-documented, and whilst the current CEOs have all driven significant change in their respective groups, they will likely be thinking of succession planning as an opportunity to leave a definitive mark. A transformational deal would certainly do that.

And when it comes to shareholder value, shareholders in these businesses who have witnessed Aegis scoring a multiple of 12 may be tempted by such figures and their knight in shining armour may well come in the guise of a tech player like Google or Apple. They certainly have the cash to do it.