Is it time to change the agency holdco model?

During summit, shareholders were asked to elect board members. Andrew Scott, the group’s COO–an existing board member facing election for the first time—was a notable inclusion given his remit to ‘simplify’ WPP’s portfolio. His inclusion in the board election is significant, given his mandate to ‘simplify’ WPP’s portfolio, which is a key focus for the company, plus mergers and acquisitions.

According to Digiday sources, Scott’s activity in recent (and forthcoming) months is likely to profoundly impact WPP’s future. And such sources claim his opposite counterparts across ‘The Big Four’ agency holding companies are likely having similar ruminations as the agency-holding group model is under debate.  

Options on the table?

In WPP’s most recent quarterly earnings, it reported Q1 revenues of £3.4 billion ($4.27 billion), equating to a 1.4% annual decrease or a 5% reduction, but with leadership there eager to highlight client wins such as AstraZeneca, Canon, Molson Coors, and Nestlé (among others).

As underlined at its most recent AGM, investments in AI and closer integration of its portfolio with multiple sources are integral to WPP’s pitch to the market, suggesting that WPP has been exploring its options in recent months.

However, no deals have been reached due to several factors: interest rates, which continue to be high, inhibiting access to cheap funds; the uncertain effect of generative AI on the agency business, particularly the creative and production sectors; and the fact that a holding company like WPP is too complex to swallow in one acquisition bite.

WPP declined to formally comment on the record when Digiday approached it with claims by former insiders at the agency-holding group that a break-up of some description was imminent and is likely to play its cards close to its chest until it is ready to strike.

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Among the private equity companies said to have circled WPP in recent months—which is being advised by Goldman Sachs— include Silverlake Partners, which is said to have passed on proceeding more than six months ago; Blackstone, Kohlberg Kravis Roberts & Co., and Carlyle Group.

WPP’s media investment arm, GroupM itself, could be a target. However, its revenue and EBITDA driver value have shrunk in the last decade, far from when it commanded approximately 75% of WPP’s valuation and practically all of its EBITDA. 

According to one former WPP executive, a decade ago, WPP leadership even considered harnessing GroupM’s value as either a tracking stock or a full-on spinoff from the parent entity. But the decision internally was that the remaining assets of WPP just couldn’t hold up enough value to keep the parent stock healthy. 

One possibility is that the rumors around WPP might have to do with the holding company’s efforts to sell its 40% stake in Kantar, the research and data firm. Separate sources with knowledge of the discussions told Digiday WPP attempted to sell its stake to Bain Capital, which offered a price lower than it would take. According to one source, Goldman argued that WPP could secure a better price — but It couldn’t be determined at the time what that price was.

Meanwhile, WPP officials remain tight-lipped, and sources’ opinions appear split on how proceedings will play out.

Multiple sources predicted the ongoing turnaround plan would center on consolidating its structure, with some predicting this may include smaller divestitures of certain entities to raise capital for its own M&A moves.

However, one finance source inside WPP, who requested anonymity, recently informed Digiday that there are no internal signs this person has seen that would indicate the holdco is close to selling or breaking up.

Meanwhile, separate sources indicated that WPP’s peers may also look to (comparatively) small M&A moves to either engineer their own turnaround or stay ahead of the pack.

Madison & Wall’s Brian Wieser said “tuck-in acquisitions” could be on the cards, but it’s difficult to make predictions, particularly as interest rates remain higher than predicted. “It’s hard to predict the bigger things,” he added. “The question is are they [transactions] in millions or billions?”

Meanwhile, Bruce Biegel of Winterberry Group noted that even if the industry’s largest holding groups do explore M&A options, their overarching strategies seem to differ. “The strategies of the holdcos are different in their go-to-market model,” he added. “Some are looking at the traditional, multiple networks that overlap, and some are looking at more of a center[s] of excellence.”