Y&R: Could the drowsy giant be awakening?

Set up in New York in 1923 (yes, 1923!), Y&R’s principals were John Orr Young and the legendary Raymond Rubicam, perhaps the first copywriter to gain fame. It was an innovator from the start: it created the first-ever colour TV ads back in the 1960s. By 1975 it had become the biggest ad agency in America (and probably the world), with billings totalling almost half a billion dollars – a staggering sum at the time. It went public in 1998, and by 2000 it had been snapped up by Sir Martin Sorrell at WPP, who was seeking to add to his haul of big networks, which already included Ogilvy and JWT.

Sorrell paid an eye-watering $5.7bn for Y&R. It was by far the biggest deal the industry had ever seen: the Publicis-Omnicom of its day. It was the acquisition that made WPP the world’s largest holding group.

Y&R has always made acquisitions and I bet that when you think of the names I am about to mention – VML, Wunderman, Landor, Burson-Marsteller, and, here in the UK, Rainey Kelly Campbell Roalfe (RKCR) you always thought these were direct WPP buys – but, as I said earlier, it’s not been seen as a mover and shaker of late.

It was perhaps a surprise, then, to learn earlier this week that Y&R had acquired a majority stake in the rather splendidly-named Plasenta Conversation Agency, a social media agency based in Istanbul.

Founded as recently as 2011, Plasenta specialises in social media monitoring and management and digital media projects for Turkish and international markets. The agency employs more than 60 people and clients include Coca-Cola, Vodafone, and TEB BNP Paribas. Its unaudited revenues for the year ended 31 December 2012 were 3.5m Turkish Lira or ‘TRY’ (about £1.1m), with gross assets as at the same date of TRY 1.5m. Unaudited revenues in the 12 months to September 2013 were TRY 7.3m.

It’s an interesting deal for two reasons – one, Plasenta is a growing company with an established track record in an increasingly important space; and two, because it’s Turkish.

Turkey does not have the allure or spectacular growth rates of China, but it’s a country you’d want to be in. With an area of 300,000 square miles (three and a half times the size of the UK) and a literate, largely young and (in urban areas at least) secular and aspirational population of around 74 million, it’s a regional superpower – or at least is likely to become so. It’s already the world’s 15th-largest economy, and despite wealth inequalities (and a sometimes wobbly democracy), it can be seen as a stabilising force in a notoriously unstable region. WPP has often expressed its desire to gain a firm foothold in the “Next 11” (other countries in this group include South Korea, Indonesia and Mexico). Given the uncertainties in other Next 11s like Iran, Egypt and Nigeria, Turkey increasingly looks like the safest and most potentially profitable of this near-dozen.

WPP recognises this – Plasenta is the fourth big investment it has made in Turkey in the past two years. WPP companies based in Turkey (including associates) now employ nearly 1,000 people and generate revenues of $100m.

Y&R’s most outwardly ambitious and expansionist unit, digital marketing agency VML, was also busy earlier this week. It acquired 100 per cent of Biggs Gilmore Communications Inc., a digital advertising and marketing agency in the United States, for an undisclosed sum.

Founded in 1973, Biggs Gilmore’s unaudited revenue for the 12 months ended September 2013 was $21m, but a client list highly compatible with VML’s own (including Kellogg’s, Kimberly-Clark, Foster Farms and medical equipment maker Stryker) must have been the icing on the cake with this deal. There are opportunities to consolidate common accounts, which should lead to greater scale and increased revenues as well as significant cost savings and margin enhancements. Headquartered in Kalamazoo, Michigan (gotta love the name of that town, worth buying it for that alone), with an office in Chicago, Biggs Gilmore employs 140 people.

Biggs Gilmore is VML’s third transaction this year. In October, it acquired IM2.0, a leading digital advertising and media agency in China. And back in June it announced that it acquired a majority stake in NATIVE, the digital marketing agency in South Africa – a deal we wrote at length about here on The Drum. The agency, which is recognised as one of analyst Forrester’s 'Digital Leaders', also entered the Japanese market with the launch of VML Tokyo in March.

I can see VML – and hence perhaps Y&R itself, – being one of the spearheads of WPP’s ever-onward global expansion and a key player in achieving Sorrell’s target of at least 40-45 per cent of revenues coming from both fast-growth markets and new media over the next five years.

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