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Sorrell, the great deal-maker, makes small-scale deals add up

By Andrew Moss

June 6, 2014 | 7 min read

With everything that’s been going on these past few weeks with Publicis, Omnicom, Apple and Havas, it’s time we had a look at what WPP has been up to.

Sir Martin Sorrell

When the Publicis-Omnicom merger was called off last month, my colleague Tony Walford wrote that WPP’s strategy of organic growth by acquisitions in digital, mobile and other fast-growing disciplines and in growth parts of the world such as Asia Pacific and 'Next 11' countries had been vindicated. I think he was utterly correct: WPP boss Sir Martin Sorrell deserves kudos for sticking to his guns and refusing to be panicked into making a mega-acquisition or merger of his own.

In fact, as we showed in our Green Square Triennial infographic feature, published in The Drum at the very end of April, WPP has been by some distance the most active acquirer of the year so far, with 16 major acquisitions (I calculate it closed 54 deals in total during 2013, more than anyone else). In the intervening five or six weeks, the group has continued to buy up agencies all over the world, growing steadily without burdening itself with unsustainable debt.

Many of these buys have been in my view very astute, and some of them are worth highlighting here. One thing WPP is very good at is acquiring businesses and folding them into existing agencies or networks.

Take dnx, for example. One of WPP’s biggest networks, Ogilvy & Mather, acquired award-winning UK agency dnx last month for an undisclosed sum. Dnx occupies an under-studied but thriving niche in the market, B2B advertising.

Now based in Guildford, but founded in London in 2000 by Drew Nicholson and Domi Pettifar, dnx employs approximately 100 people and specialises in brand creation and development, DM, video and advertising, website design, online advertising, email marketing, app development, CRM, and social media strategy. Clients include Axis, Cisco, SAP, SITA and Vodafone. dnx's consolidated revenues for the year ended 30 June 2013 were £8.4m, with gross assets of £3.7m as at the same date.

So, a good catch, then. WPP said in a statement that this investment “continues [our] strategy of developing services in important markets and sectors and its declared commitment to strengthening its digital capabilities across all its disciplines”. Which is pretty much what you’d expect it to say. Bang on strategy.

But for me, it’s what WPP has done with its new baby that’s interesting. One of the secrets of a good acquisition (ie, one that adds value) is to integrate it seamlessly into the offer you already have, or else complement it by adding something your offer previously lacked.

O&M in the UK has had its own B2B agency, Ogilvy Primary Contact, for many years. It was the smallest part of a huge group, but it operated in a profitable niche, even if it didn’t perhaps have the scale to attract the very biggest B2B clients. More recently, it has become a sub-agency of OgilvyOne, formerly known as O&M’s DM agency, but which has, through a mixture of ambition, great creative and a laser focus on winning new business, become the largest and most successful unit within O&M in the UK. In the process it has also built up a sizeable B2B business of its own, creating acclaimed work that both satisfied clients’ requirements while using techniques learned in B2C.

O&M senior management merged all three elements into one unit to create OgilvyOne dnx and in the process have instantly built the UK’s biggest dedicated B2B agency (with over 180 staff) while retaining all the creative and management talent. This will be a big beast and, as the B2B market develops (we’ll return to this subject shortly in a future blog), I think we will hearing a great deal of this new agency.

Another big WPP agency that has got its mojo back in the past year or so is Grey. It has been quietly bolstering its offer via acquisitions for some time now, and a fortnight ago it snapped up a majority stake in the Volcano Group, one of South Africa’s biggest ad agencies (interestingly, it’s worth noting that a fortnight before that, WPP bought leading digital agency Quirk, which operates in five African states, including South Africa).

Now Grey, despite being a global network, has not operated in South Africa for many, many years. But with Volcano – which was immediately re-branded Grey Africa – it has re-entered the market.

Volcano/Grey Africa is a very well-established agency in the region, with a very broad – via Volcano Advertising, Volcano PR and Social, Volcano Design, Volcano Insights and Volcano Digital – offer, and gives Grey the opportunity to become a regional marcomms powerhouse in double-quick time. Again, this is a well thought out acquisition with a very clear strategic purpose (as opposed to acquiring just to get bigger, or to stop someone else doing it).

For the last of WPP’s acquisitions I want to look at this week, we need to fly north west across the Atlantic, and to Canada. Three weeks ago it bought Twist Image, a Canadian digital marketing agency.

Twist Image, founded in 2000, has offices in Montreal and Toronto and employs more than 100 full-time staff working on accounts like Dairy Farmers of Canada, TD Bank and, perhaps most importantly, Wal-Mart.

"It will be business as usual for us," said Mitch Joel, president of Twist Image. "We are happy with the business we are doing and we hope that this partnership with WPP will help us access new and bigger clients."

Good for Twist Image, then, but what’s in it for WPP?

The companies declined to disclose terms of the deal, but Twist Image will be a relatively small addition to the WPP empire. Its revenues last year totalled the equivalent of $12.2m, according to WPP. But that’s not really the point – what WPP gets is the organic growth it wants, another digital agency and some more talent. And given that digital advertising is relatively underdeveloped in Canada, there are big opportunities up for grabs – it’s yet another deal (following WPP’s buyouts of Canadian shops Taxi and John St last year) that will leave rivals playing catch up.

A deal doesn’t necessarily have to be mega to make a big impact.

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

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