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WPP, the global advertising giant, is set to buy a controlling stake in Quirk, a leading South African digital agency with offices in Cape Town, Johannesburg, London, Durban and Kenya.
Quirk’s unaudited consolidated revenues for the year ended 28 February 2014 were approximately R140-million, with gross assets at the same date of approximately R68-million. It’s understood that the deal was made, at least in part, to aid in the company’s expansion into Africa.
Quirk refused to divulge the figures, but Ventureburn has confirmed from a reliable source that the digital agency was sold for between R350-million and R400-million, which means the company probably secured a P/E of between 10-12, which is favourable and in line with Quirk’s market-leading status.
The agency, which was founded in 1999 by Rob Stokes, employs over 200 people across its various offices. Alongside more conventional digital agency services, Quirk’s assets include startup incubator 42Engines, CRM and social media monitoring tool BrandsEye and an education arm in the shape Quirk Education and the Red & Yellow School, which it bought in 2012. It’s understood, however, that only the agency is included in the deal. Quirk’s clients include Distell, Capitec Bank, Woolworths, Caltex and Tyco.
At this stage, it’s unclear how much the deal is worth. Quirk MD James McKay did however tell Ventureburn that the deal follows a buyout/earnout model, with a four-year earnout period that Quirk is already in the first year of. Ventureburn can also confirm that the Quirk leadership team will remain intact once the deal is complete.
Stokes meanwhile wouldn’t put a number on the Price/Earnings ratio the deal was valued on, but said that it was “very favourable” and that Quirk would not have entered into the deal if it hadn’t been.
He added that while the initial approach was made by WPP, the deal was structured by Quirk and its legal team.
According to Stokes, the sale has been in the works for years, but “hotted up” in the last few months. The decision to sell to WPP, he says, was made because it allowed the company to keep its cultural independence, as well as its name.
Stokes also confirmed that Quirk’s employees would retain their profit share incentive and that each employee would receive a R20 000 bonus once the deal had been approved.
According to WPP CEO Sir Martin Sorrell, the conglomerate has “watching Quirk for a while and we feel strongly that now is the right time for us to join forces”.
“As a group,” he adds, “Quirk has demonstrated consistent growth and creativity way above the market in both South Africa and the UK, and we look forward to helping them bring their unique brand of insight and innovation to our global client base.”
It seems that Quirk has been courted by a number of businesses over the years, but Stokes says that only WPP was able to meet his “Quirky terms”. According to McKay, some of the companies that have approached Quirk in the past include US-based advertising giants IPG and Adelman.
According to WPP, the deal continues the group’s strategy of developing its services in fast-growing and important markets and sectors and strengthening its capabilities in digital media.
WPP has made a number of acquisitions in South Africa and Africa in the last few years. Most recently, it purchased a majority stake in strategic communications agency Cerebra. In 2013 it purchased digital agency Native, prior to which it had acquired a majority stake in South African-born digital marketing conduit Acceleration for an undisclosed sum.
And in 2007 it bought out digital agency Aqua Online, which at that stage was the country’s largest independent full-service digital agency.
Stokes believes that the WPP’s focus on digital, and emerging markets, is the reason behind the group’s spending spree in Africa. As well as its South African properties, WPP owns agencies in a number of markets, including Kenya, Nigeria, Egypt and Ghana.
The mega corporation says that its digital revenues (including associates) were well over US$6-billion in 2013, representing almost 35% of the Group’s total revenues of US$17.3-billion.
It’s also important to contextualise the group’s purchases in Africa — and other emerging markets — alongside its rivalry with Omnicom and Publicis, which agreed to merge in 2013, unseating WPP as the world’s largest advertising conglomerate.
In South Africa, WPP (including associates) generates revenues of around US$500-million and employs around 26 000 people. Across the continent of Africa, the Group (including associates) collectively generates revenues of over US$600 million and employs over 27 000 people.
On the international stage, WPP’s spending spree has been even more astonishing. Since 2007, it’s bought outright or controlling stakes in over 122 companies around the world.
The deal is still subject to regulatory approval.
To hear Mich Atagana and Stuart Thomas chat to Quirk founder Rob Stokes about the deal listen to our special BurnCast below:
Update: This story has been updated to reflect revelations from Ventureburn sources that the deal was valued at between R350 and R400-million.