Merger is not the only answer

Not a clash of corporate cultures, but over-ambitious growth is behind two recent demergers, according to Mike Exon.

Consultancy mergers have thrown up some interesting combinations of design consultancies over the years. Some marriages are undoubtedly very happy, but too often they are the cause of quiet discontentment. The matching and meshing of cultures is clearly something of an art and is not to be undertaken lightly.

But the spotlight has fallen upon a number of design consultancies in the digital media arena that have pulled out of mergers for other reasons.

Last week, Primecom broke off the integration of Pres.co and Foresight, following its relaunch merger five months ago to become Wheel. At the same time, digital media group Cimex Media announced it was pulling out of the Ideation Group (DW April 19). Both cases reflect the simple fact that scale alone is no ticket to improving performance.

Steve Puxley was co-founder of the Ideation Group, the parent company of Loewy International, Journey and, until last week Cimex. Puxley, a former design and creative director at Wagstaffs, will now lead Cimex into a new era as Cimex Inc, and talks of “a number of potential collaborations”, some outside the design sector.

Both Puxley and Ideation Group managing director Bryan Wilsher have suggested that this split was inevitable. This was more because of the directions the businesses were taking than because of culture. Puxley is not alone in recognising the limitations of unified businesses.

“There was a big rush to merge and to get as big an offer as you possibly can. But this is growth for the sake of growth, not for any tangible benefit apart from shareholder value. When two big businesses get together there is no guarantee that you will make more profit as people are key to success,” according to Puxley.

Not everyone will benefit from economies of scale, he says, but being smaller can give you more room to operate and can enable you to get closer to your clients. “Small is more flexible. If you are a business that is flexible and small enough to build and adapt to your clients’ needs, you can grow with your clients,” he says.

Puxley is not surprised that it is design groups in the digital media sector which are now re-assessing their future. “A lot of people jumped on the Web bandwagon out of fear of losing revenue from existing clients,” he suggests, but this pressure no longer exists. “For a lot of clients the ‘dotcom frenzy’ has died off.”

Ultimately, Puxley wants more control over the direction of the Cimex business. “I think the key issue for us is being in charge of your own destiny,” he concludes.

Meanwhile for Wheel, relaunched from the bones of digital media groups Pres.co and Foresight, it was the financial demands of merging, rather than integration issues or culture, that forced the plan to be aborted.

Managing the integration of these large and more or less equally sized groups, with offices far apart and two inherent cultures was never going to be an easy task.

But according to Miles Johnson, director of the merging groups’ parent Primecom, it was the sheer cost in time and energy which became increasingly infeasible. As the sector slowed, the merger and imminent flotation of Wheel, as it was then, could not be sustained, he explains.

“Integration takes a lot of energy – perhaps as much as 30 per cent of people’s time. We cannot afford that at the moment. Both businesses are now having to focus on serving their clients,” he says.

Johnson believes that both the 200-strong Wheel and the 150-strong Foresight still have the scale to command client confidence, despite being separate entities again. Their financial, human resources and IT functions have already been integrated, he says, and will stay this way in order to benefit from economies of scale.

“What has happened is that we merged the easy bits. The most important and most challenging part would have been merging the sales and delivery parts of the business,” says Johnson. Now this will not happen.

“We thought we could do it,” says Johnson, but the tables got turned on Wheel’s merger as a result of the sector slowdown. Though culturally, Johnson still sees a fit between the businesses. “They are the same sort of people,” he says. He also dismisses the possibility that a split might have happened because the brunt of London’s Clerkenwell slowdown had to be borne by the less digitally-centric Foresight.

“Wheel [formerly Pres.co] was the dominant partner and the more financially aggressive business. Wheel is further up the curve in making adjustments to its business,” he explains, which is why its cuts were announced immediately.

For its part, Foresight Europe “is going through a process of evaluation”, says Johnson, which sounds unfortunately like it is not yet off the hook in terms of cuts.

Circumstances dictate that Wheel and Foresight Europe now need to remain “market-focused” indefinitely, he says. Ultimately, discontinuing the full merger will give both businesses a chance to concentrate on “client problem-solving”. Johnson finishes by saying, “It is a blush I am happier to live with.”

Both scenarios show there is a careful line to be trodden when “going for growth”. Though, for many, this comes too late. Cautious bears might advocate private, over public, ownership as the best means to alleviate excessive pressure.

Clearly some realistic self-assessment might be in order for those groups still considering flotation.

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