KKR’s PR move could strain WPP’s media conglomerate model
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
In most walks of life, receiving a chunky bid for a non-core asset would call for celebrations. For advertising, PR, media and market research group WPP, however, KKR’s interest in its stake in FGS is likely to be bittersweet.
The private equity firm’s bid for the WPP-controlled public relations firm just highlights the underperforming group’s discount to the value of its parts. With conglomerates out of fashion, and a new WPP chair on the horizon, the group should be pushed to review its sprawl.
KKR’s rebuffed approach valued FGS at more than the $1.43bn implied by its purchase last year of a 29 per cent stake in the public relations firm. That was equivalent to perhaps 13 times FGS’s ebit, on Citi estimates. Given that US-listed rival FTI Consulting trades closer to 20 times trailing ebit and that WPP would be selling a controlling share of over 50 per cent, there may be room to improve that offer.
But whatever the outcome, WPP’s investors will be alive to the fact that this — admittedly high margin and hard-to-replicate asset — is attracting suitors at not far off twice WPP’s 2024 ebit multiple of 7.2 times. That should pique interest in other ways to unlock the value embedded in this marketing and advertising conglomerate.
Small-scale moves — which fall under the heading of housekeeping, rather than break-ups — might be the first in their sights. WPP owns other PR firms, such as Burson and Ogilvy PR. This segment — which accounts for some 11 per cent of WPP’s ebit and is of debatable importance to its marketing offering — might yield £2.2bn at a KKR-pitched ebit multiple, estimates Citi, for a 5 per cent uplift in the stock.
Such tinkering would, of course, do nothing to solve WPP’s underlying problem of anaemic growth. This year, it targets a revenue increase of 0-1 per cent. Rival Publicis is gunning for 4-5 per cent. In part, this is down to WPP’s relatively high exposure to the tech sector’s slowing spend. But it is hard to escape the conclusion that rivals have better embraced new trends. Publicis, for instance, has been benefiting from its exposure to data-driven services following the acquisitions of Sapient and Epsilon.
The challenge for WPP is to show that it too can put its investments in AI, digitalisation and data to good use. Absent that, the company will come under increasing pressure to find other ways to shake itself up.
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