On Tuesday last week, shareholders in Lord Bell's Chime Communications approved the sale to the WPP Group of 49 per cent of its investment in HHCL & Partners. Now just one of HHCL's founders - Steve Henry - remains, and billings are predicted to have collapsed from £116 million in 2000 to less than half that figure in 2002.
Collecting a down payment of £3.5 million for selling half a company that Chime bought for £24 million in 1997 inevitably begs the question of what went wrong, but perhaps more important is the question of how any buyer of a people business can minimise the risk of the investment turning sour.
Two aspects merit closer attention. First, how can a buyer preserve all the beneficial cultural characteristics of the business it acquires? And secondly, to what extent can "earn-out" arrangements retain the ongoing commitment of the vendors in any event?
In the first year after the HHCL sale, Rupert Howell remained actively engaged in the agency, notwithstanding his new role as the joint chief executive of Chime. Then followed a couple of years as the IPA president.
Alex Lury left within weeks of the deal, followed some time later by the former HHCL finance chief, and close ally of Howell, Robin Price. What's more, the financial inducement for the vendors to maintain HHCL's profitability had expired at the end of an exceptionally short earn-out period of just one year. And one year was not long enough to ensure HHCL's management succession plans were tried and tested.
A longer earn-out period might have bought more time, but that alone would never have bought adequate commitment. It is the preservation of the "spirit" - even more than the organisational culture - of a successful agency that seems to be paramount in securing its continuing success after takeover. It was HHCL's mould-breaking spirit that yielded the Tango campaign in the 90s. Such spirit can be put at risk if founders are too hasty to realise the financial value of the business, according to Robert Saville, whose relatively young and successful agency Mother still thrives on its independence.
Ironically it may have been the outwardly exciting spiritual and cultural environment of Howell's business that seduced Lord Bell to buy it, but the rationale for the Chime deal seems to have put that spirit under serious threat.
According to Howell, the commercial rationale was to bring together for the first time the leading exponents of paid-for and unpaid-for communications to deliver a client's marketing needs. On one thing both Bell and Howell now agree: the rationale failed. Howell blames internal power struggles between brand managers and communications chiefs within client organisations, although there were exceptions: "When the concept was applied it worked sensationally," he says.
Those cultural clashes within the clients may also have infiltrated Chime.
Instead of preserving and enhancing the culture and spirit of HHCL, the struggle for cross-discipline collaboration within the Chime group may have undermined it.
Some acquiring groups seem to have been more successful than others in maintaining the momentum and profitability of their prey. Look at Abbott Mead Vickers, for example. Founded 25 years ago, it maintained the commitment of its three founders to a greater or lesser degree for the first 20 years.
The first opportunity for cash to take precedence over commitment was when the group went public in 1985 and the founders extracted their first significant financial return on the business they had built. But the City expects ongoing commitment and the AMV team delivered it.
When it cautiously embarked on the acquisition trail, it placed as much importance on "cultural fit" as on profit potential. "We were always concerned to build the group around the hub of a creatively focused ad agency," Michael Baulk, the agency's chairman, says. Saville still remembers how the cultural and spiritual influence of David Abbott was omnipresent.
Of course, not every acquisition fitted this mould. For example, Freud Communications did not settle comfortably into the AMV culture. But in many cases, AMV was as successful in retaining the commitment of acquired owners as it had been in retaining the interest of its own founders. All three founders were still involved when Omnicom's BBDO network took a minority stake in 1991, although by then Baulk was in charge of the core business. The BBDO deal allowed continuing management freedom, offered commercial benefits in the form of an international network, and gave the group the additional stability that doubtless helped to ease it through the gradual departure of its founders, leading eventually to outright ownership.
There are other cases where the founders have remained seriously involved beyond the collection of a nice bundle of money. Bartle Bogle Hegarty is one. Nigel Bogle and John Hegarty are both very visible in the agency, despite having handed over much of the management to a younger team. A passion for overcoming challenges by delivering exceptional work drives them on. The agency is still churning out industry leading creative work, such as Levi's "twist" or Xbox "mosquito".
Even the proceeds from selling 49 per cent of the group to Leo Burnett - adding further value to the BBH offer in the shape of a worldwide delivery network - appears not to have diluted that passion and the key people remain conscious that they are part owners of the business.
As Nigel Bogle puts it: "Every approach we had for BBH was characterised by two things. They all wanted a majority and they all wanted to merge us or change us in some way. Only Leo Burnett understood what we were trying to achieve and was happy to take 49 per cent and stand back and let us go out and achieve it. That has been very motivating in itself and the ownership structure allows us to enfranchise the next generation of managers. Control and motivation are tightly linked at BBH."
There is a lesson here even for acquirers that take a majority stake, as Baulk readily acknowledges: "You must respect local sovereignty," he says. That's why the cultural fit is so important and why, with hindsight, the idea of bringing together the disparate cultures of HHCL and Chime was a brave but risky notion. In the words of Robert Saville: "Culture flourishes better in the wild than in captivity."
- Bob Willott is the editor of Marketing Services Financial Intelligence (www.fintellect.com) and a special professor at the University of Nottingham Business School.