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WPP Takes 20% Stake of Globant

4 January 2013

(New York TimesMartin Sorrell, chief executive of the British advertising giant WPP, is not deterred by the political tension in Argentina or economic setbacks in Brazil. Far from it: his firm is still investing in Latin America.

In its latest move, WPP has invested $70 million in Buenos Aires-based information technology services company Globant, in exchange for a 20 percent ownership stake. The agreement closed last week, according to Martin Migoya, the chief executive of Globant.

“This is Latin America’s time,” said Mr. Sorrell, whose company has acquired Chilean, Mexican and Brazilian agencies over the last two years, including and Gringo.

WPP’s new investment in Globant also gives it increased access to social and gaming technology development, a focus of the Argentine start-up and an area the company has been aggressively chasing. Last year, WPP acquired the digital marketing agency AKQA, originally based in London.

“We’re not in the business of creating technology,” but applying it more to our clients, Mr. Sorrell said.

According to ZenithOptimedia, a media buying agency, ad spending in Latin America is estimated to increase by 10 percent this year, to $41.78 billion. That compares with a projected growth rate globally of just 4.11 percent.

Digital is a driver of the increase. The ZenithOptimedia report also forecast that online ad spending in Latin America grew by 22.9 percent in Latin America in 2012, versus 7.8 percent globally. And this year, digital ad spending in the the region is expected to grow 22.7 percent, compared with 10.2 percent globally.

WPP’s competitors are also increasing their investments in the digital sector. The Publicis Groupe said last month that it acquired two digital agencies — Monterosa and Rokkan. It previously bought the Rosetta Marketing Group, Razorfish and Digitas.

In a December research note, JPMorgan Chase Cazenove maintained its positive stance on both WPP and Publicis in part because it said that “more revenues from outside mature markets and from digital should sustain mid-term growth in spite of the uncertain macro outlook.”

Still, compared with recent transactions in the industry, WPP’s investment in Globant is a bit of an outlier because it is a minority shareholder. “Our primary focus is taking control of a company,” Mr. Sorrell said, but he added that the company was open to taking smaller stakes.

The WPP investment values Globant at about $350 million, according to Mr. Sorrell. Two earlier firms, Riverwood Capital and FTV Capital, have invested about $40 million, according to Mr. Migoya. Endeavor Catalyst is also a small investor.

Globant, which was founded by four Argentines in 2003 with $5,000, said its revenue in the first half of last year was $57 million. Clients include Google and several WPP companies.

Globant has also bought four smaller companies, including the Brazilian technology company Terra Forum last year. Negotiations with WPP preceded this, but Mr. Migoya says that having a presence in Brazil “had a certain influence in WPP’s investment.”

Globant has also influenced Argentina’s nascent start-up sceneElectronic Arts was a Globant client when John Pleasants was chief operating officer. When Mr. Pleasants left Electronic Art to lead Playdom, he continued working with Globant.

As a result, Mr. Pleasants became more aware of Argentina’s software developers. In 2010, Playdom bought Three Melons, a social gaming company based in Buenos Aires, before it was acquired by the Walt Disney Company.