Sir Martin Sorrell’s departure could see interested parties carve WPP into many parts
Barely 24 hours since Sir Martin Sorrell abruptly left the media empire he built from scratch and bets are on as to which of the businesses he acquired will go first. Bankers and private equity giants are set to start circling WPP’s market research, public relations and health divisions as Sir Martin’s exit finally leaves the world’s largest advertising group open to a break-up.
Senior industry figures said a split is now inevitable as WPP begins life without its 73-year-old founder, who transformed a tiny manufacturer of shopping baskets into a £20bn media group made up of 400 separate companies including Ogilvy & Mather.
“The company is no longer growing, so how do you reboot shareholder value and get investors back on side again? All you can really do is crystallise value by disposing of assets,” said Alex DeGroote, a media analyst at Cenkos Securities. “In terms of probability I’d say it’s 100pc, the question is the timeline.”
The firm’s market research assets, such as London-based Kantar, are deemed as the most saleable in the short-term, with City analysts expecting a Kantar sale to raise up to £3.5bn. DeGroote said its roster of PR companies such as Buchanan and Finsbury could also be sold, but he estimates that it would only fetch up to £1bn in total, while private equity giants are likely to be eyeing up WPP’s health firms such as Sudler & Hennessey.
“What everyone wants in media at the moment is data, people are absolutely obsessed. Healthcare lends itself to that,” said DeGroote. “PR on the other hand has less data, it’s not growing, it’s less of an international story. PR tends to target quite a localised market, research tends to work across borders.”
Be Heard Group founder Peter Scott, who started his career at Ogilvy & Mather, said the era of mammoth holding companies running the industry is coming to its end, and Sir Martin’s exit is synonymous with that.
“If you go back one step and you look at the way these holding companies have evolved, you ask yourself the question – for whose benefit did they grow? Was it for clients, staff or shareholders?” he said. “The growth of holding companies [such as WPP, Publicis and Omnicom] really came about from the Eighties when media buying was taken away from the agencies. They saw it as an opportunity to consolidate all their media companies into large power points. That era is now coming to an end. If you take the competing groups in [WPP] such as Grey and Ogilvy, they’re all fighting each other.”
That’s also likely to have been the case in WPP’s boardroom in recent weeks. City analysts believe there was a disagreement between Sir Martin and the rest of the board over strategy while sources told The Telegraph he left after growing “fed up and p ***** d off ” with the board’s handling of an internal probe into alleged misconduct, of which WPP has refused to disclose any details. Sir Martin, who has denied wrongdoing, told staff the ad giant “will always be my baby” after he retired on Saturday.
“This story is a tragedy because you’re deconstructing what Sorrell has constructed,” said DeGroote. “The company will now be run in more of a shareholder way. What I mean by that is there will potentially be some special dividends off the back of some disposals. [It will become] a smaller, leaner group with a bit more focus and a lot of M&A activity.”
For the investors who have been questioning Sir Martin’s advertising empire in recent months, that more nimble model is exactly what they want. WPP’s shares have steadily fallen in the last year as it has struggled to grow amid drops in advertising spend, the growth of social media platforms and fresh competition from consultants such as Accenture. Its forecast of no growth for 2018 despite this year’s Winter Olympics and football World Cup, which should boost sales, disappointed shareholders further.
“They’ve had substantial investor pressure. Whereas Martin was saying it’s all very difficult [in WPP’s latest results], Publicis came out and said here’s a three year plan, here’s a solution,” noted one senior industry figure. “The old story that scale and volume is everything is changing – clients no longer see that as a benefit.”
But while a change in strategy is inevitable, crucial questions remain unanswered which could distract the business from moving forward. Sir Vince Cable, the Liberal Democrat leader, is among those piling pressure onto WPP to disclose the details of the allegations Sir Martin has been accused of, with many angry that the claims are still shrouded in secrecy.
Then there is the tricky issue of finding a replacement for one of the most famous businessmen in the world just as the company tries reorganise itself. Mark Read, the boss of WPP Digital and digital marketing agency Wunderman, has just been made joint chief operating officer and is seen as a likely internal candidate. But some have suggested a big external name, perhaps Jeremy Darroch at Sky or Jerry Buhlmann at Dentsu, might be favoured by the City. Or even nobody at all.
“People keep going on about successors but he’s not your typical man to replace because he sits at the same table as [Donald] Trump and CEOs like Bill Gates. Who are they going to get with the same profile? Nobody,” added DeGroote. “[Roberto] Quarta being made executive chairman indicates there won’t be a replacement, no real succession plan and nobody they’ve got their eye on. Quarta’s background is largely in private equity, he’s very well versed in restructuring.”
Sir Martin Sorrell: WPP’s 73-year-old founder resigned on Saturday