Imagine if achieving international status with offices spanning the globe and a client list that reads like international directory enquiries was as simple as signing on the dotted line. Well, for certain consultancies, it literally has been.
Global expansion seems to be a key factor in many of the deals between design groups and marketing communications groups. Though out of vogue in the cost-cutting Nineties, M&A’s (mergers and acquisitions) enjoyed a roaring trade within the design fraternity back in the heady Eighties. Naturally, there were some sad endings, acrimonious divorces even, but the hungriest buyer of design groups, WPP, has spawned several successful alliances, despite the rough patch experienced by the communications giant during the recession.
But just why would designers want to hand over their reigns to a parent company? Many design groups were lured by big payouts and the prestige of becoming part of a public group in the Eighties, though today few buyers have the cash to make tempting offers, and the City has long since lost its attraction for the industry.
Yet there are bonuses to be had. Unlike some of the acquisitive groups which went on design spending sprees in the last decade, WPP has kept its stable of design groups, and they seem to be doing very nicely taking advantage of networking opportunities within the international conglomerate.
“The bottom line is it’s been extremely good for Sampson Tyrrell for a number of reasons,” claims Dave Allen, chief executive of Sampson Tyrrell, which became part of WPP in 1988. “It’s panned out better than anyone here thought it would. Without a shadow of a doubt it has opened doors, and our international expansion wouldn’t have been as fast. It’s helped us tackle the rest of the world outside Europe.”
Allen claims one of the first benefits was improving Sampson Tyrrell’s quality as the group learned from more established industries within WPP. “Design wasn’t a mainstream industry like advertising or PR, and it forced us to put in place practices to match those of our sister companies.”
He also estimates that up to 25 per cent of revenue stems from working with other group companies.
Lloyd Northover’s motivation for joining forces with Citigate Design just over two years ago was to enable expansion after surviving recession. “The main reason was to build an international business, and it was inevitable having gone through deep recession that we had to look for growth,” says vice-chairman Jim Northover. After a hard search for the perfect partner, Citigate Design seemed an appropriate fit, bringing corporate literature skills to complement Lloyd Northover’s strength in identity, and a parent group full of useful contacts.
Parent Citigate Group took a controlling stake (51 per cent) in the consultancy, and according to Northover, “so far so good”. After the first year of integration, Lloyd Northover Citigate has been able to capitalise on international contacts within the group and has secured a presence in Singapore and Hong Kong, and it’s likely the next stop will be North America. “We’re looking to develop wherever Citigate goes,” adds Northover.
Landor, acquired by advertising giant Young & Rubicam in 1989, now works with other Y&R companies in 16 different markets. The international group sold 100 per cent of its equity to the Y&R holding group when it was 50 years old, and managing director of Landor Europe Peter Farnell-Watson claims it’s been very successful for Landor. “It’s been excellent, it’s been solid, and what is very pleasing is that as we work together in markets it’s a win-win situation.”
He adds that being able to call in the parent group’s management skills is a huge advantage, and one that helped Landor through its “hiccups” during the recession. “We went through a rocky patch and they helped keep us going.”
US design group Lippincot & Margulies signed up with insurance conglomerate Marsh McLellan seven years ago in a move which vice-president Barry Green claims has provided capital for growth and large employee benefits in addition to working with sister companies. “We’re run as a separate company so we have autonomy and all the resources of a $4bn New York Stock Exchange company”.
Networking has proved fruitful for Coley Porter Bell’s managing director Amanda Connolly, who was able to approach Dave Allen at sister company Sampson Tyrrell and quiz him about his consultancy’s practices when she took up her new role last summer. She’s also keen to capitalise on being part of WPP, and sees “real opportunities, particularly in terms of international expansion, as we have a huge resource and network within the group”.
The fact that WPP has not lost any of its design interests is testament to the rewards the subsidiaries claim to be reaping. Other alliances have not had such happy endings, with consultancies including Springett Associates and Horseman Cooke breaking free from public parents by buying back their control. In some cases the design/advertising mix has not proved successful, in others the consultancies found they were making bigger profits than their holding companies. But the WPP consultancies stuck with the group despite the refinancing difficulties experienced in the lean years.
“The only hiccup we had when WPP hit problems were the credit checks. Had anything gone wrong we would have been a prime asset, but we’re a separate limited company and it didn’t really affect us,” claims Allen.
Bob Willott, a partner with business consultant Willott Kingston Smith, says part of the problem in acquiring a consultancy is working out its value, which is usually perceived as the design talent of the individuals. “The trend over the past few years has been for much more realism. There aren’t a lot of buyers out there who are prepared to pay attractive multiples. People are willing to buy those that are in trouble, but that won’t be for a lot of money.”
A factor in the big sum deals of the past, such as the 12.5m paid by WPP for Coley Porter Bell, was undoubtedly rewards for surrendering shares and meeting targets. But this was not the driving force behind M&K’s deal with public marketing communications group Birkdale, a more recent alliance completed in November 1994. Design director Paul King emphasises that he and partner George Makulski weren’t willing to hand over the control of their retail communications consultancy despite the approaches they had from buyers. But the Birkdale offer “seemed like a good synergy”. So good in fact that Makulski became chief executive of Birkdale as part of the deal, which was more of a reverse takeover.
King says that way they ensured the M&K ethos continued. “If we’d have taken up one of the other offers we would have been personally richer, but we would have lost control and would have been seen as money-making machines,” he says.
But King admits the first year presented a difficult learning curve. “The main teething problems were not being in control of our own trading,” he says, with profits going to the parent group. Now though the cross referrals are flowing, the company is growing and the Hertfordshire-based M&K has a London office.
The pressure of having to please the parents by meeting targets set by a holding company is often seen as one drawback of being owned. But Northover doesn’t see it that way. “I don’t know where people get the illusion that being your own boss means you don’t have targets to meet. We’ve always had targets, and they are our own targets here.”
Allen also denies any problems over pressure from up above. “I’ve never thought of them as chaps in black leather cracking whips. That’s the image that’s painted, but it’s not reality.