WPP plc (WPPGY - Analyst Report) , a premier global communication services group, has recently agreed to acquire a 20% stake in Globant S.A., a technology services provider focused on delivering innovative software solutions, for $70 million. The strategic move is aimed at augmenting its market-leading position in digital capabilities, besides enabling it to target fast-growing geographic markets and emerging sectors.
Headquartered in Buenos Aires, Globant has a strong presence in Argentina, Brazil, Uruguay, Colombia, the United States, and the United Kingdom. The geographic diversity, particularly in the Latin American countries, is likely to benefit WPP with the FIFA World Cup 2014 and the Summer Olympics 2016 both taking place in Brazil. In addition, Globant is among a select few companies that offer both technical and creative expertise on a global scale. To elucidate, besides providing clients with the requisite infrastructure and technical support for digital marketing campaigns, Globant also offers the creative flair and design skills to effectively drive them. Consequently, a strategic tie-up with such a unique company is likely to generate additional revenue for WPP.
Furthermore, Globant has a core competency in some of the state-of-the-art digital marketing spaces such as mobile, social networks, cloud computing, big data and e-commerce sites. This would enable WPP to extend its product portfolio and gain a footprint in the faster-growing sectors like digital, data, and application of technology. Over the next five-year period, WPP expects digital revenues to account for 35%-40% of its total revenue. In 2013, the company expects its digital revenues to exceed $6 billion, representing over 33% of its total revenue.
On the other hand, with WPP on board, Globant will strive to be one of the most innovative software companies in the world. Through its operating companies, WPP offers a host of advertising and marketing services including advertising & media investment management; consumer insight; public relations and public affairs; direct and digital promotion and relationship marketing. Consequently, the transaction is a win-win deal for both the participating companies.
We maintain our Neutral recommendation on WPP, which currently has a Zacks #3 Rank that translates into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #3 Rank for Interpublic Group of Companies Inc. (IPG - Analyst Report) , one of the competitors of WPP.