Is this the end of the era of mega marketing mergers and acquisitions?

Partners at Green Square, Corporate Finance Advisors to the media and marketing sector, cast their eyes over the latest industry deals and look ahead to the next tranche of acquisitions.

Sir Martin Sorrell

Sir Martin Sorrell said something very interesting last week. Actually, he’s often saying things, but what he said on 30 August was particularly striking, even for seasoned Sorrell-watchers.

Interviewed on business TV channel CNBC, the eminence grise of the ad industry batted away the – rather inevitable, it has to be said – rumours that he was considering making a cheeky (perhaps audacious is a better way of describing it) bid for Dentsu/Aegis (or even Interpublic Group, which is looking ever more vulnerable these days).

He dismissed the rumours – which have been circulating ever since last month’s mega-merger of Publicis and Omnicom – as “complete speculation” and “a figment” of somebody’s imagination.

Sorrell said rather than making another mega-deal, his company WPP would focus on “making acquisitions in the new markets of digital and data investment management”. He also said WPP would keep focusing on the lower-middle to middle-class consumer markets both in emerging markets and mature ones, which he said continued to be "very strong".

Talking after WPP reported increased profits on 29 August, Sorrell said his group had “rather upped” its targets for fast-growth markets and digital in preparation for the upcoming Publicis and Omnicom merger.

"That’s where we’re going to put the focus of our attention on, particularly in the post-POG [Publicis Omnicom Group] world,” he said.

"If the POG does pass the regulation hurdles in whatever form, then all it does is accelerate the implementation of our strategy, which is why we have upped our targets for fast-growth markets and for digital."

Now it’s easy to dismiss his comments as a deliberate attempt to obfuscate his intentions. But I think he was being perfectly straight during the CNBC interview. I would bet that he is currently more interested in organic growth, and in benefiting from any client or talent dissatisfaction resulting from the POG merger, than in a mega-deal involving Dentsu or IPG. It’s certainly a more sensible strategy than betting the whole firm on a risky takeover or merger, especially as most observers seem rather sceptical about the long-term value of POG. Rather than acting hastily to regain the No.1 position, it seems more likely to me that he’ll play a long game, and take advantage of any opportunities that present themselves.

And WPP has been active in buying up shops in emerging markets, and of all the big groups, it has embraced the importance of data most readily. Sorrell was talking about the importance of data five or six years ago.

As well, he’ll have been heartened by the $130bn sale by Vodafone of its stake in Verizon earlier this week. Vodafone is now a smaller, but arguably a more focused company as a result, and it is awash with cash. WPP already has a big chunk of Vodafone business, both here and, more importantly, in India. The Vodafone deal could provide the group with some of the organic growth Sorrell is after.

Sir Martin’s comments came after the company published its interim results for the six months ending 20 June, which showed the group generated revenue of £5.33bn, up 7.1 per cent on the prior year. WPP said revenues were stronger in July than they were in the first six months, up five per cent on a like-for-like basis.

Sorrell said that, while the July revenue had accelerated, "one swallow doesn’t make a summer, so we have to see what happens with the next five months [of 2013]".

He added the areas of concern were capital investment in China, India and Brazil, where he said there had been a "slowdown in investment".

However, Sorrell said capital investment was not where the business’s heart actually was, and said the group’s focus was the consumer category, which had expanded with hundreds of millions of new buyers – which is again why the Vodafone deal could prove to be vitally important over the coming months and years (providing WPP maintains its stake in the network’s considerable ad budgets, of course).

All of this brings us back to the big question – is the era of the mega-merger or buyout coming to an end?

I think that it may be – even if it’s simply because there are so few large entities left to buy. I suspect that Dentsu is off-limits, which just leaves Havas and IPG, plus the smaller groups such as Creston and Cheil. Then there’s also the fact that – greater leverage over media owners aside – most observers, as we’ve already said, seem unconvinced of the long-term value of POG. Only time will tell on that.

Barry Dudley is a partner at Green Square, corporate finance advisors to the media and marketing sector.


Barry Dudley

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