Growing pains

The Eighties are back – at least in terms of the merger and acquisition activity that the design industry is currently experiencing.

According to Simon Rhind-Tutt of The Tutt Consultancy, which advises design consultancies on a range of business matters, including mergers and acquisitions, “Lots of the big 65 players in the UK, the US and France are on the acquisition trail. They want to buy groups that will give them as broad an offer as possible.”

However, Tutt says that what buyers really want are direct marketing, database marketing and digital media companies to add to their portfolios. “Design is not really at the top of their list. That is partly because a lot of design consultancies lack clear positioning and this reflects in the fact that they are not maximising their value,” he says.

Richard Watson of Global Design Register says, “The M&A field is pretty active at the moment. It is primarily advertising groups that want to expand and offer clients a complete integrated strategy.”

Website design is also pretty volatile as the market gets increasingly competitive. Watson believes that the sector will polarise between major players and smaller groups, with no room left in the middle. As well as the growing number of communications giants seeking a design presence in their portfolios, there is another reason for the increased activity in mergers and acquisitions – a growing number of design consultancies are looking to sell.

According to Watson, “A lot of the people who founded design groups in the Eighties are now thinking about their future and how they are going to get out of the business with some money for their old age.”

Rhind-Tutt adds, “Succession is a big issue. But a lot of consultancies think about it too late. An acquisitive company is looking for a good investment. It wants a consultancy with a steady income stream, good clients and strong management, not people who are at the end of their careers and desperate to get out.”

He cites John Sorrell, chairman of Interbrand Newell and Sorrell, as a good example of a company founder who has planned well for the future. “There are some people in the design industry who have wised up and recognised that what buyers want is continued strong performance – any deal of any substance will be over a three-year period,” he says.

But Richard Watson warns that the spate of mergers and acquisitions may be coming to an end. “It won’t last for ever, because the economy looks like it’s going to slow down. Added to that, there won’t be many good businesses left to buy or merge with,” he says.

THE OPEN AGENCY

1983 Mike Horseman and Gary Cooke form Horseman Cooke

1988 Horseman Cooke bought by ad agency Lowe Group

1993 Horseman and Cooke buy out of Lowe Group

1997 Horseman Cooke acquired by Abbott Mead Vickers-owned through-the-line agency McBains for an undisclosed sum. It becomes Horseman Cooke McBains, with Horseman and Cooke as managing director and creative director respectively

1998 Horseman Cooke McBains changes name to The Open Agency. Of nine directors within the 130-strong integrated group, Horseman becomes managing director of design, Cooke creative director of design and Giles Keeble creative director of advertising

The Open Agency

Mike Horseman is wary of acquisitions. “It’s a case of once bitten twice shy,” he says.

Some years ago, Horseman Cooke was part of the international advertising conglomerate The Lowe Group. It wasn’t a happy period in our history. “We just became a group of designers at the beck and call of the big ad agency. We got junk-like pitches and logos to do and were treated like a free in-house design team,” he says.

Having extricated themselves from The Lowe Group, Horseman and partner Gary Cooke vowed never to do it again. But a few years down the line, the pair took the plunge once more and the consultancy was acquired by through-the-line agency McBains, owned by ad agency Abbott Mead Vickers.

“You could say we were hypocrites, but the time seemed right to do another deal and it was a chance to be part of AMV, the best ad agency in the world,” says Horseman. He says that while Horseman Cook’s revenue was “pretty good”, there was no room for growth. “We always flew by the seat of our pants because we didn’t really have the infrastructure in place. We have recently picked up South West Trains as a client, but as Horseman Cooke we probably wouldn’t have done because we didn’t have © the sort of infrastructure that would have instilled confidence,” he says.

Cooke adds that running Horseman Cooke meant “that we found we were getting involved in so many aspects of the business that we weren’t putting as much into design as we could”.

For its part, McBains wanted to acquire a consultancy that would help it refocus on its design offering. Michael Tack, business development director, explains, “We wanted to leave behind the past because there was a lack of clarity about what we were good at. We wanted to go forward and position ourselves as first and foremost a design offering.”

Tack says that McBains sought out Horseman Cooke “not necessarily because they were the biggest or the best, but because we knew them and we knew their history. We felt it was important to have some sort of feeling for the people we were going to do a deal with.” He says that the consultancy had both the ability and the attitude that McBains was looking for.

Having done the deal in August 1997, Horseman Cooke became Horseman Cooke McBains, but it wasn’t an ideal solution. As Horseman explains: “We had been Horseman Cooke for 16 years and we were very attached to it. However, there was no longer a McBain involved in the business and there were nine directors – we couldn’t all have our names over the door because it would have been daft, so we had to change.” He says that the name The Open Agency was selected “because it sums up the company – we are honest and open”.

Open is now a 10m integrated service agency, which includes design, multi-media and advertising . “We have moved into the premier division and we want to stay there,” says Horseman, now Open managing director of design, while Cooke is creative director of design. Open gets work referred from other parts of the AMV empire. “If AMV has a client with only half a million to spend, it is small fry to them, so they refer it on to us and we act as an overspill.” Open also passes on tasks such as new media buying to AMV’s media buying specialist, New PHD and it is working with AMV’s direct marketing arm Craik Jones.

Horseman says that the relationship with the parent company is much better than the one that it had with The Lowe Group. This is due to the fact that every AMV company has a “champion” on the board who fights for their corner and refers work across. “In the old days it used to be a case of ‘let’s buy this company and let them make lots of money for us.’ While we still have to meet the bottom line, this is much better,” he says.

However, while Horseman is pleased at how the acquisition has gone, he says that there were times when he and Cooke questioned whether they had made the right decision. “We said from the outset if it’s another Lowe Group situation then we will walk out the door. In the first few months we did think ‘Have we done the right thing?’”

If the honeymoon period was a little difficult, Horseman says that the actual marriage has worked out very well. “Over time the relationship has blossomed from an ugly duckling into a swan.” But he adds “ask me again how I feel in two years time”.

MARSTELLER GIANT

1986 Giant formed by Mark Rollinson, Neil Smith, Alan Herron and Martyn Hay

1997 Giant acquired by international communications group Burson-Marsteller, part of Young &Rubicam, to go international

1999 Herron quits to join The Chase in Manchester

Marsteller Giant

When Giant was acquired by international communications company Burson-Marsteller in the summer of 1997, it didn’t expect one of its first projects would be in Kazakhstan. However, one of the bonuses of being part of a much larger organisation is that it provides Giant with greater access to the international design stage. Burson Marsteller has over 60 offices in 32 countries.

Although the company is best known for its expertise in corporate, financial, hi-tech and consumer public relations, it is also involved in other areas of communication. These include advertising, crisis and issues management, government and public affairs, training, business TV, multimedia, research and planning and audio/visual and print production.

“We have been involved in all sorts of projects that we would never have had the chance to work on before,” says Marsteller Giant director Mark Rollinson. “As well as working on design and advertising projects, Burson-Marsteller has a business-to-business unit and so we have helped to develop roadshows. This means we are casting actors and organising transport around Europe,” he adds.

Before doing the deal with Burson-Marsteller, Giant was approached by four other interested parties, including two design groups. It finally agreed to join Burson-Marsteller for an undisclosed sum (including a signing on fee for the partners and a “significant” increase in salary), because “staying independent meant we were getting none of the advantages of being partners. We were profitable but we were not making the returns we would have liked,” says Rollinson.

However, he adds that the motivation was not purely financial. “We had a strong creative reputation, but we weren’t necessarily getting top notch projects. We wanted to secure the long-term future of the consultancy and a stable source of first class work because it’s an extremely competitive marketplace,” he says. Giant now offers a European-wide design capability and “works its magic” on Burson-Marsteller’s blue chip client list.

Rollinson says that it is provided with a “warm introduction” to Burson-Marsteller’s high calibre clients. He estimates that about 80 per cent of the work that comes in does so via Burson-Marsteller. The remaining 20 per cent comes to Marsteller Giant directly.

“From those that approach us directly, we can now cherry pick the clients that we really want to work with,” he says. Marsteller Giant also gets cross referrals from Landor Associates, which is also in the Young & Rubicam stable. “Landor works at the high-end strategic level, but it gets approached with business that is more suited to our skills, such as annual reports or brochures and so we can take that on,” says Rollinson. As a result, the team has now grown to 24 people.

Rollinson says that part of the success of the takeover is that staff felt happy about it from the outset. “You have to persuade staff of the merits of the opportunity and let them know where they stand in the new operation – that their jobs are safe and so on,” he says. Meanwhile, being part of a much larger organisation frees the Giant team from the day to day grind of running a business. “We are not accountants or business specialists. We can leave the business management in the hands of people who are better qualified to do it and we can concentrate on the thing that we do best – design,” says Rollinson.

He maintains that the Giant team has no regrets about the deal – although it has broken up the original partnership because Alan Herron has now moved on to Manchester group The Chase. “The four of us [Neil Smith, Martyn Hey, Herron and Rollinson] had been working together for 12 years and that’s a long time in any business relationship, particularly design. Alan decided the time was right for him to move on.”

The deal has also eased the question of succession. “Before, if one of us had wanted to leave we would have had to get the consultancy valued and sort out, our liabilities and all that sort of thing. Now if we want to move on we can extricate ourselves quite easily,” says Rollinson

RODNEY FITCH & COMPANY/WICKENS TUTT SOUTHGATE

1989 Wickens Tutt Southgate formed by Michael Peters & Partners breakaways Mark Wickens, Simon Rhind-Tutt and Paul Southgate

1992 Rhind-Tutt quits WTS to set up The Tutt Consultancy

1993 Duncan Bruce joins WTS as a director from Holmes & Marchant

1994 Rodney Fitch quits Fitch and sets up

Rodney Fitch & Company with 50 per cent backing from Richard Branson

1996 Bruce quits WTS. Southgate denies the consultancy is in financial difficulties. Rodney Fitch & Co takes a ‘generous’ stake in WTS

Wickens Tutt Southgate and rodney Fitch & company

In the world of mergers and acquisitions not everything goes according to plan, and, with hindsight, a deal may not deliver all that it promises.

In 1996, after months of talks with potential suitors, brand design group Wickens Tutt Southgate signed a deal with retail specialist Rodney Fitch & Company. Under the terms of the deal, Rodney Fitch took a “generous” stake in ailing WTS. What it was getting was one of the few strong brands in the UK industry and one which had won an array of awards for creativity. WTS, on the other hand, was getting a partnership with one of the design industry’s elder statesmen and, more importantly, a badly needed injection of cash.

Paul Southgate, founder of WTS, says, “At the time it was widely reported that we were looking for a partner. The deal with Fitch satisfied an immediate need for a capital injection which would help to keep the business going and give us breathing space to turn the business around.”

At the time, Southgate said that the fit between WTS and Fitch was a good one because “We both share a vision about working for certain kinds of clients and a vision of the future. It’s a new vision about new retailing, partly driven by the impact of technology and screen literacy and partly by retailers viewing themselves as a brand.”

WTS chairman Mark Wickens added, “We need someone who will move us forward quicker. We’ve always been pioneers and were looking for someone to create a vision for clients that’s not based on old models.”

Both WTS and Fitch believed that by bringing branding and retail design closer together, there would be substantial opportunities for both groups to combine their skills and work in tandem where appropriate. WTS also felt that there might be opportunities to pick up business in the then booming Asian market where Rodney Fitch was forging ahead. In addition, WTS believed that it might benefit from the fact that Fitch is 50 per cent owned by Richard Branson’s Virgin Group. Virgin was expanding beyond its airline business and into the branded goods arena with Virgin Cola and Virgin Vie as well as into new and diverse areas such as Brides, branded clothing and financial services.

At the time of the deal, it was thought that WTS might be able to work with Virgin in a brand development role, although it would have to pitch for the business just like other design groups. However, things didn’t quite work out like that. Although Southgate says he is happy with the deal with Rodney Fitch, and stresses that both parties get on well together, he admits that the outcome has been rather disappointing. “We have done some work together which has been tremendously successful, such as for the Seattle Coffee Company, but the number of opportunities in the retail arena have not been as big as we expected,” he says.

Southgate maintains the reason for this is the general state of the retail market. High street sales have suffered badly in the past year and as a result retailers are taking a cautious approach. This is compounded by the fact that Rodney Fitch has suffered from the downturn in the Asian market. In 1996, the Asian market was still booming and, in anticipation of continued growth, Rodney Fitch opened an office in Hong Kong – this has subsequently closed. “The Far East was a priority for Fitch, but the bottom has fallen out of the market due to the economic slump,” Southgate explains.

Meanwhile, the tie up with Virgin has not proved as beneficial as WTS had once hoped: “Probably one of the biggest disappointments has been the number of opportunities from the Virgin Group.” WTS has worked with Virgin’s cosmetics company Virgin Vie, but other projects have not been forthcoming. Southgate says this is down to the culture of the Virgin Group. “Virgin is a collection of fiercely independent companies and when you ring the door bell and say we are part of the family, they are more likely to slam the door in your face than welcome you with open arms,” he says.

But he reiterates, admitting that despite the disappointments, he is content with the arrangement with Rodney Fitch. “It’s pretty good and it has allowed us to revitalise the business. Would we have been better off with another party? Who knows, but we are not unhappy with the situation,” he says.

CORPORATE EDGE

1990 Craton Lodge & Knight buys Michael Peters Group out of receivership and creates Michael Peters Ltd

1992 Craton Lodge & Knight changes its name to Princedale Group to avoid

confusion with brand

development subsidiary Craton Lodge &Knight Company

1997 CLK and MPL complete 3.6m buyout from the Princedale Group, along with The Brandnaming Company

1998 CLK.MPL buys corporate design group ADC and multimedia subsidiary Look Interactive. It launches Corporate Edge to focus on corporate branding

Corporate Edge

When CLK and MPL bought themselves out of their parent company, the Princedale Group in 1997, they recognised that it gave them the opportunity to run the business in exactly the way they wanted. And what they wanted was not only the success of the individual CLK and MPL companies, but also a division which would provide clients with a holistic approach to brand strategy and implementation.

According to CLK.MPL chief executive Chris Wood, “Since the buyout we have been working hard to configure the company. Rather than just stick the two consultancies into one, we have created a spread of market-focused services, capitalising on the synergies of our skill base.”

Under Princedale’s ownership, CLK focused on new product development, innovation and high level, “upstream” branding strategies. Having worked out a strategy for brand owners, the implementation of that strategy was then carried out by any one of a number of corporate identity or packaging specialists. Meanwhile, MPL focused on corporate literature, architecture and interiors, and packaging.

Following the buyout, CLK.MPL decided to find out exactly what clients wanted. Directors from Financial Times Top 500 companies were canvassed for their opinions of corporate branding and on the quality of consultancy already available in the market.

One thing became clear from the research – companies are facing new issues as consumers become ever more marketing literate. Corporate accountability and corporate ethics are now firmly on the agenda and companies which ignore them do so at their peril.

As Corporate Edge brand strategist Jonathan Hall, explains, “Increasingly, strong corporate brands are more important than a company’s portfolio of products or services. How a company is perceived by consumers can make an all important difference between their decision to buy or invest in a product, or simply moving on to a corporate brand name which they find more acceptable.”

So CLK.MPL launched a new division called Corporate Edge to address these issues and provide a holistic service covering brand strategy, development and implementation of brand identities and internal brand communication. “It’s become apparent in the last year that existing consultancy offers have failed to keep pace with change in this field – changes in clients needs, in thinking, in ways of working,” says Corporate Edge chairman Peter Sampson. “What clients want is a specialist branding consultancy which will not only deliver brand strategy and identity development, but critically, will focus on consolidating and increasing the financial stability and investment potential of their company.”

The 22-strong Corporate Edge team was drawn from CLK.MPL’s corporate identity, brand naming and strategy divisions. It also draws on a pool of designers from sister groups. Meanwhile, MPL continues to offer architecture, interiors, packaging and literature, while CLK focuses on innovation and product development.

Corporate Edge managing director Bridget Ruffell says, “If we had wanted to launch a seamless combination of strategic branding and corporate identity, we could have done it on day one.” She claims that what Corporate Edge represents “is a market-oriented offer that breaks new ground in corporate branding”.

However, bringing together a disparate group of people into one new entity is difficult, she concedes. “The first thing we did after the buyout was to get everyone into one building and get MPL’s interiors specialists to redecorate so that it felt like a new organisation,” she says.

The Corporate Edge team began working together as quickly as possible, says Ruffell. “We wanted to break down any internal barriers that might have existed and the quicker that people begin working together, the quicker they get to know and respect one another,” she says.

The company is at pains to stress that the formation of Corporate Edge has not resulted in the cannibalisation of CLK and MPL business. “At the start we were getting referrals from either CLK or MPL, but now we are out there pitching for business in our own right and competing against the likes of Enterprise IG and Interbrand Newell and Sorrell,” says Ruffell. She adds that the number of cross referrals is still high, but that it now works both ways. Corporate Edge clients now include CGU, Lloyds TSB Insurance Shop and Carlson Worldwide.

THE IDENTICA PARTNERSHIP/TANGO DESIGN

1987 Ad agency Bartle Bogle Hegarty sets up Tango Design

1992 Michael Peters sets up The Office of Michael Peters, having quit Michael Peters Ltd. This is superseded by Identica, set up with Cambridge science group Generics

1995 Identica is renamed The Identica Partnership

1998 Identica merges with Tango. BBH gains a 21 per cent stake in the combined business

The Identica Partnership and Tango Design

The relationship between advertising and design is growing closer as the merger between two of the industries’ biggest stars – Michael Peters’ group The Identica Partnership and Bartle Bogle Hegarty’s Tango Design – illustrates.

Peters says that the deal, signed last December, unites the groups’ complementary skills. The merger has created a combined through-the-line design business with a turnover of more than 10m and over 90 staff. Retail graphics specialist Tango is now part of Identica, but retains its name and acts as a separate profit centre. Meanwhile, BBH takes a 21 per cent share in Identica – a share which Peters describes as a “passive” holding.

Peters remains Identica executive creative director and managing partner. But Tango managing director Sarah Bratt and creative director Peter Rae have joined Identica’s seven-strong management team.

Through the merger, both parties intend to further grow their respective parts of the business. Identica, which was launched seven years ago, saw its turnover grow by 30 per cent to 7m in 1998 and Tango, with a turnover of 3m, grew by 15 per cent last year. Both are looking to expand and anticipate further growth of around 15 per cent this year.

Although BBH has no representation on the BBH board, it is expected that both Identica and Tango will collaborate with the ad agency on various projects. A link with a design group allows BBH to broaden its offering to clients. Meanwhile, Peters may get a potential foot in the door with BBH’s ad clients.

The deal has been helped along because Michael Peters and BBH founder John Hegarty enjoy a long-standing relationship. This is further cemented by the fact that Identica and BBH have worked together on integrated campaigns for mobile phone company One2One.

Never one to hide his light under a bushel, Peters says, “Identica is working in partnership with our clients to build the world’s most distinctive, compelling, powerful, and timeless brands. We specialise in brand creation, development, and management, and deliver tailored solutions that are unique, practical, and market-oriented.”

But while Identica focuses on building brands, Peters says he is constantly “frustrated by the fact that at the point-of-purchase the communication of those brands is dismal”. His intention is to do something about it by linking with Tango, which, he says, has a great reputation for creating design “at the point of engagement”. Tango has considerable experience in the retail arena and has worked with leading fashion brands including Nike, Levis, Ray Ban and Dockers.

“Tango has an enviable client list and experience in the fashion industry and TV. Many of our clients are multinational brands which could benefit from Tango’s skills at the point of engagement,” Peters says.

Tango, meanwhile, will benefit from Identica’s strategic approach and the merger will “allow Tango to develop its offer to its full potential”. It will also allow both Identica and Tango to expand their offers to a broader range of clients.

Peters is tight-lipped about his plans for the merged companies and will only say “watch this space”. However, this link with a retail graphics outfit may even herald a return to full scale retail design.