WPP: The big deal that went under the radar

7th June 2013

WPP is to marcoms holding groups what Tesco is to retail. None of the advertising giants is as closely scrutinised as Sir Martin Sorrell’s global behemoth. Like Tesco, it is often seen as a bellwether for the rest of the industry.

Whenever Tesco prospers, or stutters, or embarks on a new venture, the rest of the retail industry – indeed, the rest of the business world – sits up and takes notice. And so it is with WPP – which is why I was surprised that the group’s recent acquisition of Sinotrust, a huge Chinese market research company, garnered so little attention. Perhaps it’s because the media views market research as unglamorous, not as “sexy” as advertising or digital; however market research will always be a hot area as it is the insights gained from such activities that determine the production of goods and services.

But this was a big deal, even by the standards of WPP. Its wholly-owned operating company TNS (itself acquired for an eye-watering $1.93bn in 2008), which brands itself as “the world’s leading custom research company”, last month agreed to acquire Sinotrust Market Research from Experian. The amount WPP/TNS paid has not been revealed, but rumours are that “hundreds of millions of dollars” were paid. Whatever the sum (and I suspect those estimates are excessive, given the agency’s financials – see later), it’s a big deal.

Founded in 1992, Sinotrust Market Research employs 350 people and has offices in the powerhouses of Beijing, Shanghai and Guangzhou. Sinotrust is the industry market leader in automotive market research in China. This is interesting, because WPP’s single biggest client is Ford (Ogilvy, Mindshare, Wunderman and JWT are among the WPP-owned agencies working on the account globally; and in Europe and Asia, there’s a joint venture, The Blue Hive, made up of the first-three-named of those agencies, and which exists solely to service the auto giant).

And of course you don’t need me to tell you just how big the automotive market is becoming in China. Last year, according to the auto trade press, 12.7m cars were sold in China; this year sales are expected to top 15m. By 2022, a staggering 30m motors will be bought by car-hungry Chinese, according to analyst PSA – and even then fewer than 20 per cent of China’s adult citizens will own a car. Those are the kind of long-term growth prospects all businesses dream of.

Sinotrust’s offering includes consumer research, product research, brand research, channel research and customer research analysis. It has a blue-chip client list that includes leading automobile companies. Its unaudited revenues for the year ended 31 March 2013 were RMB 255m ($41.6m), with gross assets at the same date of RMB 95m ($15.5m). Not gigantic figures compared to western currency denominated research companies, but big in China, and what’s important is that the newly-bought company has scale and market share in a vitally important sector of a fast-growing industry in what should soon be the world’s largest economy.

This acquisition fits nicely with WPP’s strategy of developing its services in fast-growing and important markets and sectors, principally Greater China. WPP was a pioneer here – it’s been committed to the region for over 20 years – and China remains one of the fastest growth markets for the company (according to the group, it is currently WPP’s third largest market with revenues of US$1.4bn).

In addition, having the greatest market share has always mattered to Sir Martin, and this latest acquisition – and the enormous growth potential that comes with it – helps close the gap between Kantar (the WPP unit that houses TNS and all the other market research/insights businesses within the group) and the mighty Nielsen.

At the other end of the scale, some smaller players have also been busy. Unless you were reading The Drum last week, you might be forgiven for not knowing who Kenyon Fraser are. Actually, the Liverpool-based full service agency is one of the bigger players in the north west of England (which demonstrates, I suppose, just how London-centric our industry can be). Founded back in 1990 as a PR specialist, the agency now has a full-service offering for its 90-strong client list (ranging from Kellogg’s and John Smith’s through to Mersey Travel and Smoke Free Liverpool). As is so often the case with smaller agencies, it moved into the digital space comparatively early (in 2001) and has managed to establish a creditable presence there.

Now its presence is much stronger. Kenyon Fraser has also been rather busy over the past few weeks, merging with two other agencies, Edian and Concept PR. Edian is an established regional web design and digital marketing agency that counts a large number of local businesses (such as Liverpool Cricket Club, Fleur Florists, Riverside Entertainments and Merseyside Cosmetic Clinic) among its clients. Southport-based Concept PR, meanwhile, is a full-service PR, marketing and events company, again with a long list of regional clients (including Stocks Healthcare, Wayfarers Shopping Centre and Ramada Plaza Southport).

It’s easy to mock small, local agencies with their clients nobody in London has ever heard of, but regional PR and advertising is actually a pretty good business to be in right now. Think about it – many of the UK’s businesses are regional or local, not national, and have marcoms needs just like FTSE 100 giants. It’s unlikely they can afford the fees charged by the big London shops, so they go for a smaller entity with good local knowledge and contacts – it makes perfect sense really. And the agencies themselves can thrive because their costs (staff and premises specially) are so much lower than in the capital.

But consolidation is starting to happen at the regional level, just as its been going on at the national and global levels for years. Kenyon Fraser was already an agency of decent size, but the merger protects all three companies from predators and prepares them for growth on a national scale, if desired. Interestingly, rather than a full integration, the three companies have gone for a “business as usual” approach and a “family” structure.

As a result, former Kenyon Fraser managing director Richard Kenyon has moved into a chief executive role, with Ben O’Brien becoming the new MD. The managing directors at both Concept (Margaret Tarpey) and Edian (Nick Holland) will remain in their current posts. As far as we know, the Edian and Concept names will remain, which means that client relationships will be seamlessly maintained while savings could be made by sharing certain services (HR, finance, facilities, etc) and scale can be built organically and sustainably. It’s a sensible way of building a future for businesses of this size.

This subject of regional consolidation is one that we’ll return to, and I’m sure we haven’t heard the last of the growing Kenyon Fraser family.