WPP, so strong in identity through its global Enterprise network, now has a serious contender in the annual report field in the shape of Addison, the latest consultancy to join its design stable.
The deal, worth up to 8.5m, takes Addison back into public ownership after seven years’ independence and puts the consultancy’s nine directors on service contracts of six or 12 months.
City analyst Lorna Tilbian of Panmure Gordon sees the Addison acquisition as “an infill acquisition to strengthen WPP’s position in design. It puts it in the vanguard in report and accounts.”
This view is borne out by Addison’s newly appointed non-executive chairman Steve Smith, the former chairman who was one of the team behind Addison Design’s 1989 management buyout from the Addison Group. “WPP wanted to buy us. They’re not very big in our area and want to be,” he says.
This may be news to two-year-old Sampson Tyrrell Corporate Marketing, born when Sampson Tyrrell’s main identity business adopted the Enterprise banner, and already operating in the field of corporate communications. But, at WPP, Addison’s introduction is seen as reinforcing its existing offer. The two groups will initially remain separate, but in the long run some sort of link up would seem a sensible option.
“Clearly there is a crossover. They have some very talented people and we need to work out if there is common ground,” says Simon Lake, Addison managing director who becomes managing partner. “One option is to link up.”
STCM managing director Quentin Anderson says it is too early to say how WPP’s corporate communications offer will develop, or if a merger is likely. “We will examine the possibility of joint initiatives,” he says.
In the meantime, it will be interesting to see how much of an inroad Addison makes into WPP’s client list. “[WPP has] a great network in which to find more work,” says Lake. This network is also available to STCM and there is a very real chance the two groups will find themselves pitching against each other.
Anderson was in on the Addison deal and says he is not nervous about the situation, “WPP has to look at the brand it has bought and the brand it owns.”
The mood at Addison is buoyant, says Lake. Not surprising, considering the vast network of new clients which will become available. But once the euphoria has died down, the management team will have to pull its finger out to realise WPP’s profit predictions, says one industry expert.
Typically, design companies are sold on the basis of their profits. Addison reported an operating profit of 1m in 1996, and a turn-over of 6.7m. This gives Addison, which is 54-strong, an estimated healthy profit per head of 18 500. WPP is paying up to 8.5m, with an initial 5.5m followed by 3m over five years depending on Addison’s performance.
These figures could suggest WPP expects to get more than 12 profitable years out of its acquisition. Design consultancies are normally bought on the basis of ten years of profits, which means WPP must be expecting to see reasonable growth from Addison.
While management is peddling hard to deliver the goods, Addison founder and major shareholder Steve Smith takes a back seat. “I get to be non-executive chairman – and go fishing,” he says.
This is likely to suit the directors, who are rumoured to have been uncomfortable with Smith having so much equity when Addison was independent.
The deal fulfils Smith’s previously stated aim of “getting Addison into the next generation”.
And Smith has trodden some of this ground before, when Addison Design was bought out from publicly quoted Addison Group in 1989. This time round he seems to have had a change of heart over public ownership: “There’s a big difference. [With Addison Group] this company [Addison] was the public company.” WPP, by contrast, is a global mega group, making 180m profit a year.
In one respect the deal “says more about Steve Smith than them [WPP]”, having bought out the company once and “having built it into a sizeable company and having managed to sell it again,” says Tilbian.
Meanwhile, WPP continues to eye up other potential buys, with identity and design consultancies being the main thrust on both sides of the Atlantic.
“There are always small infill companies around,” says Tilbian, who likens WPP’s move to Omnicom’s strategy of being market leader in an area and buying up smaller contenders to reinforce its position. But she adds that “the UK is the easier market to crack”.
And as for Addison, Lake is keen to break into the European market on the back of WPP’s network – somewhere the consultancy hasn’t been since the heady days of over-expansion.
The rise and fall and rise of Addison
1978 – Addison Group founded
1980 – Allied International Designers is the first design group to go public
October 1986 – Addison acquired AID in its takeover of Aidcom
April 1988 – Addison Consultancy Group buys New York business communications specialist Corporate Annual Reports for 2.1m
May 1988 – Citigate Design is formed from Addison breakaway group
July 1988 – AID changes its name to Addison
January 1989 – Brunning Group buys three Addison subsidiaries for 3.9m
June 1989 – Steve Smith resigns as chief executive of Addison Group
August 1989 – Addison Design undergoes management buyout from Addison Consultancy Group for 4.73m, and plans international push. Addison Design has a turnover of 21m, and about 300 staff in London, San Francisco, Singapore and New York
February 1994 – Addison closes down its retail identity division with the loss of 35 jobs. Part of this reappeared as Minale Tattersfield & Acton under the wing of former Addison managing director Maurice Acton
October 1994 – Addison Worldwide sells off its San Francisco and Singapore brand identity arms
January 1997 – Addison and Goldbrand settle their differences over the use of the goldfish out of court.
WPP gets its cheque book out
December 1985 – Martin Sorrell and Preston Rabl acquire 27 per cent stake in Wire and Plastic Products. WPP market capitalisation 8.75m
September 1986 – acquires Oakley Young Associates for 3m
December 1986 – acquires Sampson Tyrrell for 5m
February 1987 – acquires design and sales promotion company Scott Stern for 7m and Business Design Group for 13.25m. WPP valued at 93m, with shares at over March 1987 – acquires Sidjakov Berman Gomez, Californian packaging and identity group, for 9.7m and Walker Group CNI for 9.4m
September 1987 – acquires Greaves Hall for 1.68m. WPP market capitalisation 300m
December 1987 – acquires McColl for 32.5m. WPP market capitalisation now 150m
February 1988 – acquires US corporate identity specialist Anspach Grossman Portugal for maximum of 20.5m
June 1989 – acquires Coley Porter Bell for up to 12.5m