While the sputtering economy has slowed M&A activity considerably the last few months, WPP Group apparently didn't get the memo that now's the time to retrench and wait. Actually, Sheila Spence, SVP in WPP's corporate development, told attendees at the DeSilva + Phillps Dealmakers Summitt that she's gotten a very different memo. Speaking on a panel with other ad agency execs, Spence said: "We did get a memo: keep on acquiring. If you look at the deals we've done, they fall bull's-eye into the company's strategic goals, including having one-third of our revenue from BRIC companies and building up our digital assets." In the past week alone, WPP has taken a 49 percent stake in South Africa's The Jupiter Drawing Room and invested $25 million in Seattle web analytics firm Omniture.
Buyer/Seller expectations: The hope that acquisition targets might lower their prices as the economy has cooled hasn't really materialized, Spence said. "There's still a mismatch between what's happening in the market and the behavior of clients. When we look at acquisition targets, smaller companies haven't fully absorbed the impact of the economic changes. Deal structure can overcome a lot of the issues, in terms of how the payments will unfold." Tom Harrison, chairman and CEO of Omnicom Group's DAS, added: "We see a new reality and there is a bit of a moderation at the seller level. The divide between us and the prospective companies we seek to acquire will shrink. But having sold my company to Omnicom years ago, I think we all think are companies are worth more than they are."
Integration vs. specialization: Asked about the structure of earn-outs when it comes to digital acquisitions, Luke Taylor, CEO of LBi International, said it remains tricky: "We're more nervous about it. Half of an acquisition is about acquiring a business's customers. We try to create a single P&L, rather than a set of independent companies. Especially in the digital space, clients want accountability. They don't want a separate search specialist. But it's not particularly easy to structure deals that way."
By David Kaplan