Sept. 19--Sir Martin Sorrell is suddenly in a hurry to reshape WPP. Every month brings news of another merger of agencies within the world's biggest advertising and communications group.
The scale of the shake-up at WPP has made everyone in the ad industry take notice. MEC and Maxus are uniting to become a media and content agency called Wavemaker. Direct marketing outfit Wunderman is swallowing up digital shop Possible and e-commerce division Salmon. Then there are five branding and design agencies, including Brand Union and Lambie-Nairn, which are becoming one unit. More mergers are expected.
Sorrell, who has led WPP since 1986 and built it up through hundreds of acquisitions, including some of Madison Avenue's biggest names such as Ogilvy and J Walter Thompson, recognises he needs to simplify the group.
"I have never been a patient person," the WPP chief admitted in this year's annual report, explaining why the group needs to move from being "a loose federation of independent companies" to more like "one, united firm" to meet clients' needs.
He has been talking for many years about agencies acting as a one-stop shop but change hasn't come fast enough for some senior executives, eager for the group to be simplified.
Now there is a sense of urgency because WPP has cut its growth forecasts twice since March and sales have gone into reverse, although not in the UK where the company has defied Brexit gloom. When Sorrell slashed his global sales forecast for the second time in August, WPP's share price dived 11%, the steepest one-day fall since 1998. The shares have tumbled a quarter in six months.
Global ad expenditure is still growing, albeit more slowly, according to industry forecasts. The problem is agencies are being squeezed. Sorrell has blamed a trio of structural factors: consumer goods giants such as Unilever and Procter & Gamble are battling to cope with e-commerce and have cut ad spend because of pressure from activist investors. Advertisers can bypass agencies by buying directly from Google and Facebook because technology makes it easy. And management consulting firms such as Accenture and Deloitte are moving into digital marketing and muscling onto agencies' turf.
This is not just a WPP problem. America's Interpublic and Japan's Dentsu have voiced similar warnings. But WPP is under particular scrutiny because it is the biggest and most complex ad group and Sorrell, who is 72, is the most high-profile of the agency leaders.
He is notoriously well paid, earning £43 million in 2014, £70 million in 2015 and £48 million in 2016, but was able to see off shareholder revolts and questions about succession planning because he was delivering record revenues and profits.
Now life has got harder. This year's sales downturn could turn out to be a blip, following the loss of big accounts including Volkswagen and AT&T, and Sorrell is a formidable and brilliantly connected operator.
But questions about the agency business model are mounting. Trading scale -- WPP controls about 30% of the global ad market -- now matters less than digital smarts in an online world. Advertisers have also tightened up their contracts after warnings last year that some agencies have boosted profits through opaque pricing practices for buying adverts.
WPP and the other agency groups maintain they have been transparent but a report this week claims global advertisers are reviewing £6.1 billion worth of media agency contracts in the wake of the transparency debate.
WPP reckons the talk of Google and Facebook or the consultants eating the agencies' lunch is overdone and insists it can "weather the storm". One ally says the WPP chief has always been a dealmaker and an opportunist, which raises the possibility that Sorrell could consider a transformational merger to rejuvenate the group and cement his legacy.
But those close to WPP maintain there is no need for any dramatic move when it has a successful, long-term strategy and it won't be distracted by a couple of quarters of disappointing growth. Chairman Roberto Quarta has publicly offered Sorrell his support.
History matters to Sorrell, who controls about 1.5% of the stock and often uses revenue and earnings graphs dating back over the past 31 years in his investor presentations.
He must know more change is required to get the WPP graph pointing the right way again.
Gideon Spanier is head of media at Campaign
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