We noted yesterday that WPP CEO Sir Martin Sorrell (left) may be preparing to abandon his recent policy of small(ish) deals in favour of a big one – namely Tesco data business Dunnhumby.
Dunnhumby was founded in 1989 by husband and wife team Clive Humby and Edwina Dunn and its chief claim to fame is that it devised Tesco’s Clubcard loyalty scheme, which gave Tesco a big advantage over its supermarket rivals for many years. Now owned by Tesco, it works for other big clients including GSK and Coca-Cola and has a bigger geographical reach.
New Tesco CEO Dave Lewis is to announce his turnaround strategy for the embattled retailer tomorrow and some disposals are expected. Film streaming service Blinkbox and coffee chain Harris & Hoole are sure to be up for grabs, but they’re not worth very much. Blinkbox has lots of users but makes hardly any revenue. H&H may interest a Costa but won’t contribute that much to Tesco’s missing millions.
Dunnhumby is variously valued at between £1bn and £2bn but it’s hard to tell as it’s wholly-owned by Tesco. The danger is that its best days – Clubcard – are behind it. There’s so much data washing around the marketing world that legacy data businesses could find themselves old news. WPP, it will be remembered, bought researcher TNS Sofres for $1.9bn just as the financial crisis was building in 2008 and Sorrell hasn’t done a really big deal since.
Other interested parties are reported to include US private equity houses Clayton Dubilier & Rice and TPG, which styles itself a ‘contrarian’ investor. Sorrell has steered away from battling private equity companies; they have the advantage of being able to load a company with debt – thereby reducing its tax bill – while still being able to pay themselves huge dividends. That’s not an option for a trade buyer.
So we’ll see. ‘Math Man’ Sorrell is a big fan of ‘big data.’ He sees it as a way of giving WPP companies an unbeatable advantage with really big clients as well as a booming business in its own right.
Would WPP’s shareholders back a bid for Dunnhumby? WPP’s shares fell slightly last year and Sorrell has been telling all and sundry that clients are getting tougher on costs and payment terms while declining to spend their cash piles on marketing. So there’s work to do at home.
Shareholders might be more supportive if Sorrell promised to float off his (possibly enlarged) data business one of these days as an IPO would deliver a fat premium in the right market conditions. Can’t see it, somehow.