No panic buys: WPP sticks to its guns

Many pundits expected Sorrell to swoop for IPG, or Havas, to regain the top slot. However, the WPP boss said he was sticking by his strategy of organic growth, acquiring businesses in fast-growth new territories such as Asia, Turkey, Latin America and Southern Africa, and buying digital, mobile and other ‘new media” outfits.

And, so far at least, he has been true to his word. Although it hasn’t made a really big acquisition since its shock buyout of AKQA in 2012, WPP has been busy hoovering up business in its chosen spaces.

The year is barely six weeks old, and already WPP has made three substantial acquisition investments: The Mobile Airtime and Rewards Company (TMARC) in South Africa; Holland’s Bannerconnect; and ClickMedia from Vietnam.

Let’s look briefly at each deal in turn. TMARC is one of South Africa’s leading mobile activation and rewards companies. Founded in 2010 and employing eight people, it specialises in offering mobile airtime and other “lifestyle rewards” to its clients (who include South Africa’s biggest retailer Shoprite, Nestle, Danone, Tiger Brands and SAB Miller) using its in-house PIN encryption technology.

The price WPP paid for its majority stake in TMARC’s holding company Jupicorp Proprietary has not been revealed, but revenues for the year ended February 2013 were 60m ZAR (about £3.3m) with gross assets as at the same date of 14m ZAR (£760,000). Interestingly, the investment was made by WPP’s wholly-owned subsidiary tenthavenue, whose own subsidiaries include mobile marketing agency Joule, digital out-of-home specialist Kinetic and content management agency Spafax.

The second of 2014’s acquisitions was WPP’s wholly-owned operating company Xaxis’ buyout of Bannerconnect, a leading media trading firm based in the Netherlands. Bannerconnect specialises in providing infrastructure and services for digital media trading to publishers, advertisers and media agencies. Xaxis, meanwhile, is a digital media agency which specialises in targeted advertising and is part of WPP’s global media offering Group M.

Bannerconnect would have been very attractive for WPP because its various technology offerings (including an industry-leading real-time optimisation platform called Bright), are complementary to Xaxis’ current offerings.

Founded in 2004 in Sittar, Holland, and with offices also in Amsterdam and London, Bannerconnect employs over 40 people. Bannerconnect's revenues for the year ended 31 December 2013 were €4.3m with gross assets as at the same date of €8.3m. That doesn’t sound like a huge amount of money, but Bannerconnect operates in what I believe will be an increasingly important space in the future – the company is essentially a digital ad space trader which has managed to automate trading in real time via some very smart proprietary software.

Safe, intelligent placement at best-value prices is exactly what brands will be looking for as the digital age unfolds. And it’s not only buying space on behalf of clients (who include BBC, ING, TomTom and Mercedes-Benz), but also selling it on behalf of publishers – a double revenue stream.

Finally, and perhaps most interestingly, there was the aforementioned Group M, acquiring a majority stake in ClickMedia, a social media marketing agency in Vietnam.

We’ve not looked at Vietnam before – it often gets overshadowed by activity in its bigger neighbour, China, as well as the more obviously dynamic marcomms economies of Indonesia and Malaysia. But the nominally communist country in fact has, thanks to the Doi Moi reforms of the 1990s, a thriving private sector and an economy growing at about 7 per cent a year. As the economy becomes less centrally-planned and more market-driven, and as the government builds stronger ties with its old enemies China and he US, I predict that Vietnam will become a real marcomms growth powerhouse in South-East Asia as global brands seek to reach out to an increasingly better-off and aspirational population.

WPP’s companies (including associates) already have a presence in this fast-developing country, generating revenues of $65mill and employ about 1,000 people.

With the acquisition of ClickMedia, this presence will be strengthened ahead of the other global holding groups. It’s also another astute investment in the long-term future. ClickMedia, which was set up in 2008 and employs 55 people, is a full-service social media marketing firm (half of Vietnam’s population of 90 million are aged under 30 and many will have grown up with technology and mobile phones) which provides social media strategy, campaign strategy and implementation, as well as social media listening, crisis prevention and management.

Clients include Unilever, FrieslandCampina, Piaggio and Estee Lauder, but with the help of Group M’s enormous power, reach and client book, expect to see ClickMedia's unaudited revenues for the year ended 31 December 2012 were 23.7 billion Vietnamese Dong. This is only about £680,000, which doesn’t sound like much at all (there are about 35,000 Dongs to a Pound), but this number has to be put into the context of a developing but still underdeveloped economy. It’s also, as I’ve said, an investment in the future; and crucial, ClickMedia’s 55 highly-skilled and well-educated staff provide a crucial bridgehead into what is, for many brands, an alien culture. And when you’re trying to move into new territories, especially one as distinctive as Vietnam’s, “men on the ground” who understand cultural and economic sensitivities provide a crucial advantage.

The news of these latest acquisitions couldn’t be more timely, as Publicis unveiled its results earlier this week. Net income was €816m, up by 11.5 per cent on the previous year, and organic growth was 2.6 per cent.

At his media conference, Lévy described the performance as "outstanding" and said that his group was ahead of schedule to meet its 2018 targets.

He also highlighted the growth in digital share for the business, having seen it grow to become 38.4 per cent of its total revenue, accounting for 40.4 per cent of revenue in the fourth quarter alone.

WPP’s preliminary full-year results are expected next month, but the general opinion is that the company’s growth in new media and emerging regions will be robust. WPP's digital revenues (including associates) were well over $5bn in 2012, representing 33 per cent of the group’s total revenues of $16.5bn. WPP has set a target of 40-45 per cent of revenue to be derived from digital by 2017.

In the meantime I think that it’s great that WPP has stuck to its guns and not allowed its – in my opinion very sensible – long-term strategy to be derailed by rivals’ activities.

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