As WPP prepares to merge two of its iconic advertising agencies, the CEO of the company said there has “never been a better time to bring creativity and technology together.”
Last week, London-based WPP announced it would merge Gray and AKQA into a single company called AKQA Group. With 6,000 people in 50 countries, it will create a “new network model”, according to the company. And earlier today, WPP announced further agency consolidation by integrating Geometry with VMLY & R to create a new “creative commerce company”.
“We’ve always said we want to have fewer and stronger brands,” said WPP CEO Mark Read of the combination of Gray and AKQA, adding that “it’s important for every business. to have a growth trajectory “.
The merger is part of WPP’s multi-year efforts to streamline its branches within the conglomerate. In 2018, she merged J Walter Thompson and Wunderman to create Wunderman Thompson, and also combined Y&R with VML to form VMLY & R. Everything has happened since Read took over as CEO in 2018, having spent several years as CEO of Wunderman and a decade as Chief Strategy Officer and WPP Board member before that.
“We have looked for ways to better serve our customers, to integrate our offer and to perpetuate [our] business, ”says Read. “I think, you know, in the midst of this pandemic, when we all think about the role of technology – marketing, communications, and commerce – there’s never been a better time to bring creativity and technology together.”
The goal is to combine AKQA’s reputation for digital innovation with Grey’s creative storytelling. However, this will not happen all of a sudden. On the contrary, Gray Worldwide CEO Michael Houston has said it will happen “quickly, but at a pace that makes sense to our customers.” He added that the way people connect with businesses is changing and the combined company will allow customers “to have a lot more experience leading connections.”
“We don’t do it in a hectic way,” says Houston. “We would like to get things done. But we also want to make sure that we are careful about the process. “
In some ways, the ongoing Covid-19 pandemic could facilitate the merger, at least geographically. According to AKQA founder Ajaz Ahmed, remote employees encourage collaboration without physical barriers.
“What customers are looking for is an organization that can balance agility responsiveness, for a pioneering startup with the creative excellence and reach of a global business,” said Ahmed. “And that is really what this merger is: an unprecedented opportunity for us to build a modern and creative company that builds on our two legacies in terms of fame, experience and digital transformation, and to create lasting value for our customers and employees and the communities we serve.
Like other agency holding companies, WPP has had a difficult year as companies drastically cut their advertising during the Covid-19 crisis. However, he seems to be recovering somewhat. Last month, the company reported earnings of $ 3.84 billion, beating analysts’ estimates.
“We are in the worst recession since the great winter of 1709,” says Read. “And in fact, the performance of the holding companies has been much better than expected, including ourselves, I would say. Our business has been far more resilient than any commentator might have expected, and our revenue has been far more resilient than ad spend. I think this is a testament to the transformation that has taken place in the business of WPP and the transformation that will take place in the business of AKQA and Gray, and that it will accelerate.
Ali Mogharabi, senior equity analyst at Morningstar Research Services, says the merger is “a good move” and agrees that it will help improve efficiency and digital capabilities without losing creativity. And while previous mergers focused on digital transformation, Gray and AKQA both already have digital capacity and creativity.
“From an efficiency standpoint, it’s a no-brainer, in my opinion,” he says. “But other than that, in terms of how it might help attract customers, I think it’s very positive. You know you have Gray with such a recognizable brand merging with AKQA, basically telling you that yes, digital is going to continue to be a priority, but the creativity won’t go away.
While competing holding companies have focused on growth through acquisitions, Mogharabi says WPP has focused on organic and internal growth. He explains that the company is “well positioned” for the recovery and points out that the company has not lost large customers this year, instead adding new ones such as Alibaba, LG, Uber and the NBA – a dynamic which is expected to help organic growth in 2021 for the first time in a long time if the economy continues to recover. (Morningstar has a valuation of £ 13 on shares of WPP, which traded at £ 7.60 a share on the London Stock Exchange on Monday.)
“Digital advertising will continue to grow, there is no doubt about it,” he says. “But we believe video will be the primary growth driver of formats for digital advertising and this has increased the demand for differentiated content and creativity. This is where agencies will step in and differentiate themselves from consulting firms or anyone else.
Digital advertising spending is indeed set to rise again next year with growth of 21.1% – after almost stable growth of 1.7% in 2020 – according to an October report by eMarketer. This is more in line with the growth trends in 2017, 2018 and 2019, which each saw increases of between 19.2% and 25.3%.
The amount marketers spend on agency services appears to remain constant, according to Gartner analyst Chris Ross. And as companies bring more advertising functions in-house with teams functioning more like agencies, Ross says agency holding companies have realized they might be too fragmented.
“They have failed to rationalize all of the brands in their portfolio, ensure that they focus on specific audiences and fully understand their capabilities in certain functional areas,” Ross said of the portfolio companies. advertising. “So I think that on the agency side, they are going through a different exercise where there is a rationalization in terms of functional capacity and ensuring that they are not overinvested in certain capacities or underinvested in others at the same time. portfolio level. “
When asked if the merger would have happened if Covid-19 hadn’t happened, Read said it was something companies had talked about in the past. From his perspective, the company has had “more innovation in six months than we have seen in the previous ten years.”
“So I would say the pandemic has encouraged us to take more ambitious steps,” Read said. “And it’s certainly an ambitious decision, but I also believe it’s the right thing to do. And fortune favors the brave.