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Datawatch: How WPP is beating digital disruption with global M&A strategy

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Clayton M. Christensen, Jasper Jackson, London, LoveFilm, Martin Sorrell, Mergers and acquisitions, New Delhi, Taylor Nelson Sofres, TheMediaBriefing Experts' Blog, WPP Group, Guardian Media Group, Advertising, Broadcast, Digital Media, Finance and Deals


How can a media business survive digital disruption? Well, if you are WPP CEO Sir Martin Sorrell, you buy your way out of it

Advertising conglomerate WPP's acquisitions over the last five years shows how the firm has energetically transformed its business by buying up small and large companies across the globe, chasing its goal of making 35 to 40 percent of its revenue from emerging markets and digital media.

The resultant acquisition spree is mind-boggling: since the beginning of 2007, WPP has bought or taken a controlling stake in 122 companies.

At the time of their acquisitions, those companies had total annual revenues of £2.14 billion, total assets of more than £1.8 billion, and more than 28,400 staff.

The largest firm in terms of annual revenues acquired over the period was London-based market research firm TNS, with revenues of over £1 billion. The smallest was New Delhi-based Interactive Television Private, with annual revenues of just £521,870. 

Despite its scale, the acquisition strategy pursued by Sorrell has been far from scattergun. It has followed some simple rules that are well explained in Creative Disruption, the Clayton Christensen-esque book by LoveFilm group product director and former Guardian Media Group digital chief Simon Waldman. 

-- Adjacent markets: WPP hasn’t made the common mistake of buying into completely new markets. As you can see from the table below, many of its biggest buys strengthened core areas such as marketing. However, it has made sure it has expanded into adjacent areas that complement the rest of its business such as market research, hence the TNS purchase.

 

-- Growth markets: It isn't all just about targeting the latest, trendiest companies in the right technology areas - it's also about choosing immature markets globally that are primed for huge growth. It's no coincidence that WPP has made six acquisitions in South Africa, five in Singapore, three in Vietnam and a whopping 15 in China.

The below map shows the location of acquisitions, with the size of circles reflecting the annual revenue at the time of acquisition. (TNS has been deliberately excluded as its size dwarfs the other acquisitions).

 

-- Scale and process: These two are inextricably linked. Not all of WPP’s acquisitions have been a success, but it doesn’t need them to be. By buying lots of companies, it can rely on ending up with the right capabilities to handle a new environment. And by repeating the process over and over, it gets better at handling the identification of potential targets, the due diligence processes and integration necessary to improve the chances of making it work. 

Below you can see the frequency with which WPP made acquisitions - which averages at around two every month (you can mousewheel through the data).

 

WPP's M&A adventures are mirrored in its rival advertising and marketing holding companies, including Publicis and Omnicom. Each has tried to increase market share in adjacent sectors, often by buying up companies around the globe.

And has it worked?

WPP's profit has grown 78 percent from £515 million in 2007 to £916 million in 2011, helped by the influx of new revenue, which has risen from £6.2 billion to more than £10 billion over the same period.

For the media's biggest beasts, success looks like being global and digital.

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