‘Brands investing in ads not M&A to drive growth’

Companies are set to investment in brands to drive growth rather than chasing revenue and market share gains through mergers and acquisition, according to WPP.

Sir Martin Sorrell
The flexibility of marketing spend is trumping riskier merger and acquisition activity, says WPP, led by CEO Sir Martin Sorrell.

In a statement announcing first-half results the Ogilvy and JWT owner says client confidence worldwide is “slightly” ahead of the same period last year and in developed markets it will stay in line with or just ahead of GDP growth.

“Advertising as a proportion of GDP should at least remain constant overall, although it is still at relatively depressed historical levels, particularly in mature markets, post-Lehman and advertising should grow at least at a similar rate as GDP, buoyed by incremental branding investments in the under-branded faster growing markets.

“Although both consumers and corporates seem to be increasingly cautious and risk averse, they should continue to purchase or invest in brands in both fast and slow growth markets to stimulate top line sales growth. Merger and acquisition activity may be regarded as an alternative way of doing this, particularly funded by cheap long-term debt and for tax inversion reasons, but we believe clients may ultimately regard this as a more risky way than investing in marketing and brand and hence growing market share, particularly given the variability or flexibility of marketing spend.” 

The forecast for global ad spend is in line with predictions from ZenithOptimedia, which forecasts growth of 5.5 per cent in 2014, again with emerging market spend outpacing developed markets. Increasing marketer confidence was illustrated in the latest Bellwether report that found budgets were set higher for the seventh consecutive quarter. 

WPP, led by chief executive Sir Martin Sorrell (pictured) reported revenue increased 2.7 per cent to £5.47bn in the six months to 30 June. Pre-tax profit increased 1.5 per cent to £532m but stripped of currency fluctuations grew 15.6 per cent.