WPP has rediscovered its appetite for acquisitions, according to the chief executive who has sought to repair the advertising group’s finances and make it fit for the digital age.
Mark Read told the Financial Times that WPP, built through two-decades of relentless dealmaking under his predecessor, Martin Sorrell, was once again looking for buying opportunities with replenished firepower.
“A house is built on firm foundations,” said Mr Read. “Our foundations today are much firmer than they were two years ago. We are simpler. Our balance sheet is in better shape. Actually, it is time to start to look at how we grow and where we need to invest.”
Mr Read launched a three-year turnround plan for WPP in late 2018, after Sir Martin’s acrimonious exit from the sprawling holding company that was loaded with debt and struggling with the digital transition. Sir Martin has since repeatedly said WPP, the world’s biggest advertising holding company by sales, is “past its sell-by date” and should be broken up.
Mr Read declined to talk about his predecessor and pointed to his own achievements — reducing net debt from £5.2bn to as low as £1.5bn last year and crunching together agencies such as J Walter Thompson and Wunderman, which reduced WPP’s brands “from 485 to closer to 250”.
Significant acquisitions would be a further milestone. “We don’t just want to make the business bigger, we want to really focus acquisitions in the areas that can differentiate our offer and provide something distinct,” said the chief executive, who bought Velvet, a French customer experience consulting group last month.
“We don’t want to buy a fourth public relations firm in Uruguay,” he added. “It is really . . . acquisitions we can make that bring us scale.”
Further details of the strategy are expected to be unveiled in a capital markets day in December, along with guidance on share buybacks and the company’s future dividend policy. WPP surprised markets in August by restarting dividend payments that were suspended to cope with the pandemic.
Mr Read’s challenge is to win back investors who think agency holding groups are struggling with multiple structural tests: cost-cutting and clients taking business in-house, competition from consultancies such as Accenture, and waning clout as middlemen in digital ad markets dominated by Google and Facebook.
WPP’s share price is 65 per cent lower than its 2017 peak, and has fallen more than a third since the pandemic battered the economy. The three-year decline is a more severe than at rivals such as Omnicom and Publicis.
Meanwhile, investors have flocked to the simpler growth story of adtech providers such as The Trade Desk, which this year has soared to almost three times WPP’s market value on a tiny fraction of its revenues.
The £2bn market capitalisation of Sir Martin’s S4 Capital, a digital-only advertising group, is almost a quarter of WPP’s value even though it generated less than three per cent of its £12.4bn sales in the year to June 30.
Mr Read’s pitch is that WPP has combined its traditional creative strength with the tech expertise to build ecommerce platforms for clients such as Sainsbury’s, and become the single biggest integrator of Adobe's software. “Our goal is to be to revenue growth what Accenture is to cost reduction,” he said.
He hit back at criticism from Sir Martin, who has called traditional agencies “an albatross around his neck . . . that will probably choke him” and questioned the decision to sell the data business Kantar.
“We don’t have departments of people that just do linear television commercials any more,” he said. “In the first half [of 2020] around 40 per cent of our billings were in digital, but more than 40 per cent of our fees came from digital media.”
Mr Read stressed his record of winning ad business from tech groups: WPP won an Uber pitch this year and counts Google as its second-biggest client. As a media buyer, WPP is also Google's biggest single source of revenue.
“If a client spends £100 on TV, we would historically make £3. If a client spends £100 on Google, we may make £5 or £6 because it’s more complicated to manage Google than it is to manage TV. Shifting the budget from TV to Google is not a bad thing [for WPP],” he said.
He added that last year WPP’s “billings on Google, Facebook, Amazon were more than $10bn — they grew 15 per cent. That is a growth driver for our business.”
Mr Read said the worst declines in ad spending were “behind us” and expected a strong rebound that would bring WPP back to positive sales growth next year.
But after suffering a 15.1 per cent fall in second-quarter revenues, he expected it would be 2022 before the company regained lost ground from the pandemic. Clients were returning to ad spending, he said, but remained “nervous”.
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