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Advertising giant WPP has acquired a majority stake in strategic communications agency Cerebra, believed to be worth around R40-million.
A source close to the deal confirmed that it will see WPP take a 75% stake in the company while Cerebra CEO Mike Stopforth and MD Craig Rodney will retain the remaining 25%.
The R40-million deal is believed to have been valued on a P/E of about 8x EBIDTA. The structure of the deal will apparently see the shareholders receive a R20-million payout, with the remaining sum being paid as an earnout.
In its investor relations note, WPP says that Cerebra’s audited revenues for the year ended February 2013 were approximately R17-million, with gross assets of around R4.1-million.
This suggests that the deal is about a quarter of the size of WPP’s June acquisition of NATIVE. An investor deal note put NATIVE’s unaudited revenues for the year ended 28 February 2013 at approximately R80-million, with gross assets at the same date of approximately R39-million.
Both Stopforth and Rodney refused to put a number on the deal, hinting that the deal was a complex one. Rodney added that the way the deal is structured means that it will be impossible to ascertain its true value until the earnout period has come to an end. WPP also said nothing about the value of the deal in its investor note confirming the acquisition.
The deal, announced today, was pushed through fairly quickly with Memeburn sources saying that it was concluded within a week.
Rodney is adamant however that this does not mean the deal was rushed, telling Ventureburn that “it was concluded quickly, which is ideal in any situation.” He added that both parties were confident that all the regulatory requirements were met.
Addressing rumours that the deal that WPP pushed the deal through so quickly in order for it to steal the rug out from under its biggest rival Publicis Omnicom, Rodney said: “Over the past couple of years we’ve been in discussions with a few of the big players,” but that the WPP offer made most sense.
In an official blog post announcing the deal, Cerebra says it will be positioned “centrally within WPP to service partners across the group”, and will help effect the roll out of social media and social business solutions across Africa.
According to CEO Mike Stopforth, this does not however mean that it will absorbed wholesale into the WPP machinery. “We will stay very independent,” he said in an interview with Ventureburn, pointing that he still sees the company’s offering as unique within the South African space.
“Cerebra has actively helped define the industry of social media communication and social business transformation in South Africa for many years,” Stopforth says in the blog post. “WPP’s remarkable success in South Africa, their equity footprint in Africa and their global thought leadership in strategic communication make them a relevant and highly suitable partner for us.”
Rodney meanwhile says that Cerebra’s clients are largely happy with the acquisition adding that “if anything, it will give us greater opportunities keep clients and find new ones”.
Cerebra has been operating in the market for the past seven years, employing 35 people to look after a high-profile client base that includes Vodacom, Nedbank, Hollard, Absa, and Autopage.
The acquisition is the latest in a string of investments WPP has made in the South African agency space. Most recently it acquired digital agency Native, prior to which it had acquired a majority stake in South African-born digital marketing conduit Acceleration for an undisclosed sum.
In 2007 meanwhile it bought out digital agency Aqua Online which, at that stage, was the country’s largest independent full-service digital agency.
WPP has set a target of 40-45% of revenue to be derived from digital in the next five years. In South Africa, the Group (including associates) generates revenues of around US$550-million and employs over 25 000 people. Across the continent of Africa, the Group (including associates) collectively generates revenues of US$700-million and employs over 27 000 people.
Ventureburn is in the process of reaching out to WPP for comment and will update the story accordingly.