Analysis: WPP post-Sorrell

Julie Langley partner, Results International

Any external candidate to succeed Sir Martin Sorrell as CEO is unlikely to be available to start straight away – at this level many are working to around six months plus notice. That’s a significant hiatus at such a challenging time in the industry. But saying that, the interim leaders are unlikely to want to make fundamental changes to the business unless there is restructuring already underway that the markets are not aware of.

SMS was at the helm of WPP for over 30 years, the longest-serving CEO of any FTSE 100 company. No incoming CEO is going to want to keep the status quo, and will be under very real pressure to make WPP fit for purpose to tackle the challenges facing it and the ad industry as a whole.

And while it’s only natural to be speculating as to the future of WPP, it’s no easy feat to restructure a holding company as big and as complex as WPP. SMS had been working to rationalise the business – last autumn he brought together five of its branding and design firms and merged several media agencies within GroupM. And even though there might be growing pressure to spin off some of the businesses within WPP, that’s not necessarily going to address some of the core challenges, including that of the management consultancies such as Deloitte and Accenture Interactive who are increasingly taking business from WPP and its competitors.

Those currently doing well in adland are the nimble, independent agencies. Yet WPP can’t behave like an independent overnight. It’s an incredibly complex structure with a significant number of acquired companies that are working through their earn out at any given time.

Trying to restructure a business like WPP when you are still managing post merger integrations and earn outs would be difficult and expensive.

And what also makes a restructure tricky is having to find buyers for the businesses that you want to sell who are willing to pay a sensible price. And because of the competition between the different holding companies (WPP, Publicis, Omnicom, IPG etc), WPP is probably not going to want to sell to any of them. In which case, private equity buyers look like being the most likely candidates.

Alex DeGroote, media and digital analyst, Cenkos Securities

April 16th 2018 – remember the day. Sir Martin Sorrell’s departure is truly a ‘JFK moment’. Where were you when JFK died? they used to ask baby boomers. For this media generation, the question is now where were you when Martin got booted? And is this truly the end of an era?

The answer is yes, it is the end of an era. And yes it must be the end of WPP as we know it. Not suddenly, or overnight, but over the next two years this huge conglomerate will cease to be. As surely as it has been constructed over 30 years, it will now be deconstructed. I envisage a break-up, which will yield improved returns for shareholders, if not employees or even clients.

WPP is Sir Martin’s creation. But unfortunately over the last two years it is has gone into serious decline. The share price has lost over a third of its value. At a price of 1150p, the stock market PE rating is now less than 10x. Trust me, this is very low. And this reflects a poor profits outlook and weak investor sentiment. Hence, the WPP board has had to act. And this is against a backdrop of decent world economic growth, and the 2018 World Cup advertising bonanza. WPP is chronically underperforming.

Talk of a successor for Sir Martin misses the point. He is irreplaceable.

But the job at hand now is retrieving shareholder value, and restoring confidence. This has been lacking in recent months. The job now is for a break-up practitioner. And that man is WPP chairman Roberto Quarta.

WPP has been good for London and good for the UK as a massive employer. As a nation we really get marketing services, and we spend more on advertising than any other country in the world. This will not change even if WPP disappears. The agencies below the holding company will still thrive, in the main.

As we say goodbye to Sir Martin, his legacy ensures.

Tracey Follows, Futuremade

If you were to count the news clippings and listen to business obituaries, you’d think Sir Martin had left us. Let’s be clear he’s resigned, he’s not dead. And my bet is that he has resigned in order to do something else.

As we all know it was generally accepted that he would be carried out of WPP in a box, and the lack of succession planning has tended to point in that direction too. Sorrell is not a man who gives up, so resigning is clearly a step onto something else, rather than a step down from something. Something new perhaps, something outside WPP? Or, to position himself outside the group as it divests itself of parts of the business that perhaps he can then buy back.

Perhaps he’ll join the board of Google or Facebook or Amazon as it tries to move into advertising. Who knows. But Sorrell is like the Bobby Axelrod of Axe Capital. Why would he resign from the company he built, the company he loves and the creative industry he loves to loathe. I can’t believe he would. So something is afoot. Like Bobby in Billions, he’ll be operating elsewhere. Still advising the industry. Still the spokesperson on the world stage for how to turn creative businesses into commercial businesses. Of course, the problem is that the next leader, or leaders, of the industry are not obviously apparent.

The iconic figures of advertising and communication are more likely to be found in West Coast tech companies of the US or in China than they are on what was Madison Avenue and the streets of Soho. The world has moved on, and WPP must now move on too.

And Sir Martin’s last line of his resignation letter, alluding to a film that came out in the very same year that WPP was also born, suggests to me that this is just the beginning, not the end…

Bob Wootton, Deconstruction

Sorrell almost single-handedly led advertising’s transformation from a craft to a business.

Thus he opened many new avenues for marketers, especially big ones with complex needs looking for mega one-stop shops.

The networks, WPP the biggest of them, completed the transformation of the advertising media industry which was initiated by the independent shops in the 70s.

Despite not being an ‘adman’, he became the global spokesman for advertising and a top celebrity CEO to boot.

In the short term it will be business as usual at WPP under the interim COOs, but a new CEO will be drafted from a strong list of external candidates.

The board and new CEO will look to consolidate a spider’s web of businesses and to divestment (e.g. Kantar) to prop up share price and/or generate a war chest.

While national and multinational advertisers need professional services to match, the networks have assured roles. But they need to find new business models for two core activities – creative and media.

In doing what big companies do – streamlining processes to reduce costs and increase profits – WPP (and others) have tended to commoditise.

The race to the bottom more or less complete, there are some significant trust issues. Agency has yielded to principality, arbitrage and non-transparency. Independents with a different pitch are now doing rather well.

Sorrell’s reported contract terms are interesting: no severance pay; continued access to long-term incentives; and no non-compete clause – though this is perhaps dealt with by his departure being termed a ‘retirement’.

(The non-compete will really chafe with those who left WPP and were pinned to lengthy gardening leaves – which has likely driven them to focus their very best own efforts on trumping WPP agencies whenever possible).

He’ll still be everywhere, but will he want to start over and build another empire?