WPP Group: Grey to Acquire Yolk - Analyst Blog

Advertising titan, WPP Group Plc's (WPPGY) wholly-owned operating company, Grey recently entered into a definitive agreement to acquire major stake holding in Yolk Pte Ltd. The latter is one of the fastest-growing interactive and digital media networks in Asia.

Based in Singapore, Yolk employs over 40 people and reported total revenue of Singapore $1.3 million for the year ended December 31, 2009. Gross assets approximated $0.5 million.

The company primarily engages in offering digital strategy, social media, rich media, online advertising, viral marketing, interactive marketing, search marketing, e-marketing, e-customer relationship management and web-based capabilities. Its client base includes companies like Canon, Ciba Vision, Microsoft and Singapore Economic Development Board.

We believe WPP Group lays a lot of emphasis on new markets, new media and consumer insights, as is evident from the acquisition of Marketing Direct. The company has a dominant market share in many areas and has the pricing power to improve margins and sustain future profit growth. Moreover, revival in the global economy has improved advertising spending by companies across the world.

Global advertising expenditure is expected to be approximately $502 billion in 2011, representing an increase of 5.8% over $474 billion in 2010, according to a report by GroupM. Expenditure in the U.S. is expected to be roughly 29.4% of the global forecast, an increase of 3.7% over $142.5 billion in 2010.

Grey is among the top ten largest advertising agencies in the world. The agency has operations in North America; Europe, the Middle East & Africa (EMEA), Asia-Pacific and Latin America.

WPP Group faces competition from its peers like Interpublic Group of Companies, Inc. (IPG), Omnicom Group Inc. (OMC), and Publicis Groupe SA (PUBGY.PK).

We currently maintain an Outperform recommendation on the company. WPP Group currently has a Zacks #1 Rank which translates to a short-term rating of Buy.

 
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