This is how a shock resignation at the world’s biggest advertising company could impact SA agencies
- Martin Sorrell's resignation at WPP has sparked furious speculation about the future of the world's biggest advertising agency.
- In South Africa, WPP owns more than 50 entities, including some of the top advertising agencies.
- The group could sell of some of its agencies, or become victim of a takeover.
The resignation of Martin Sorrell as CEO of WPP, the world’s biggest advertising agency, could have repercussion for the local industry.
Sorrell announced at the weekend that he was stepping down from the advertising company which he built from the ground up over the past three decades. His resignation came amid an investigation into allegations of improper behaviour and misuse of assets.
The shock news triggered share price losses as analysts speculated that the group, which lost a third of its value over the past year, could be broken up.
While Sorrell only owns 2% of WPP, many think the company was held together through sheer force of his will. In essence, WPP is a holding company with a sprawling network of more than 400 agencies, assembled through aggressive acquisitions over many years.
WPP after Sorrell is going to be like Man Utd after Ferguson.— Ian Leslie (@mrianleslie) April 17, 2018
In South Africa, WPP has stakes in more than 50 entities, including most of the country’s top ad agencies like VML and Ogilvy & Mather South Africa.
“Sorrell himself helped drive major acquisitions in the local market, which lead to something of a bidding war for local agencies not too long ago — I suspect that may now be a thing of the past,” says Herman Manson, editor and publisher of MarkLives.com, a leading SA platform that covers advertising and marketing news.
In truth, the group, along with some of its competitors, has been consolidating its agency brands for some time now, he added.
“In South Africa alone, we have seen the iconic Y&R agency brand fall away after the agency was merged into VML South Africa. It also divested from several agencies that had fallen on hard times. Globally, it recently combined five WPP design agencies (Brand Union, The Partners, Lambie-Nairn, Addison Group and VBAT) into a single entity called SuperUnion. It has also combined its media agencies Maxus and MEC into Wavemaker.”
Manson says analysts are already speculating that WPP maysell off some businesses. There is already talk about the future of its research and data business, Kantar, which is also present in SA. However, because WPP has already undergone significant restructuring and consolidation in the SA market, no other local targets stand out at the moment, he said.
“I don't see a large-scale breakup of the business in the near term, although its depressed share price may well make it an acquisition target for one or more of the consultancy firms.”
Manson says South African agency execs are adopting a wait and see attitude. “It's unlikely local clients will feel spooked.”
Quinton Jones, Managing director of TMI Media, says Sorrell’s resignation is definitely a double-edged sword for WPP.
“On the one had it offers the opportunity for rejuvenation of a business that clearly has had a tough time of late.
“On the other it is another big global network scandal that weakens the already tenuous position of agencies that are dealing with their lunch being eaten by a host of far more nimble, non-conventional competitors. Its either going to push WPP into exciting new ground, or create complete chaos and decline – let’s see.”
Manson says WPP will have to change with the times. "The industry as a whole is facing multiple challenges, including disintermediation, commoditisation and a loss of trust from clients."
"Ultimately, he is admired for his vision and tenacity but his legacy is also closely tied to the commoditisation of the ad industry. His ability to move client accounts to agencies within the larger group, retaining revenue but often resulting in the destabilisation of individual businesses, meant he was feared by competitors, and resented by some of his own local executives."
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