LIVE ISSUE/AGENCY MERGERS: Can mid-sized shops survive today’s ad market? - Independent agencies are under growing pressure to merge, Harriet Green says

Like teenagers, mid-sized agencies reckon they’re cool - but everyone else knows better. Not as cute as kiddies, nor as wise as grown-ups: they’re going through a phase. Last week, Simons Palmer Clemmow Johnson grew up fast - by selling to TBWA (Campaign, 24 January).

Like teenagers, mid-sized agencies reckon they’re cool - but

everyone else knows better. Not as cute as kiddies, nor as wise as

grown-ups: they’re going through a phase. Last week, Simons Palmer

Clemmow Johnson grew up fast - by selling to TBWA (Campaign, 24

January).



Two theories explain this. One says the Simons Palmer chairman, Paul

Simons, was dazzled by money, trousering a few million from the

deal.



The other credits him with recognising that independent medium-sized

agencies have a grim future.



Mid-sized agencies are being beaten by bigger rivals. Last week, Howell

Henry Chaldecott Lury lost the pounds 6 million Homepride cooking sauces

account in a global realignment. HHCL may also lose Mazda this year if

Ford decides to put everything into J. Walter Thompson. All mid-sized

independents have been through this: just ask Barker and Ralston, which

lost Saab to Lowe Howard-Spink; or Duckworth Finn Grubb Waters, which

saw Pizza Hut snaffled by Abbott Mead Vickers BBDO.



Pooling accounts within large agencies became trendy in 1994, after IBM

swapped 40 agencies for just one (Ogilvy and Mather Worldwide). Since

then, Colgate-Palmolive, De Beers, S. C. Johnson, SmithKline Beecham,

Eastman Kodak and Kimberly-Clark/Scott Paper have followed suit, and the

market share of large agencies has rocketed.



That trend persuaded Martin Puris to flog his funky agency, Ammirati and

Puris, to Interpublic in 1994. Puris, now chairman of Ammirati Puris

Lintas Worldwide, explains: ’We were at the peak of our game ... (but)

we’d seen an impending crisis. Most of our clients were international

and we realised we stood to lose our client base.’ Puris considered a)

acquiring another agency - but he found nothing suitable; b)

establishing affiliations around the world - but that offered scant

control; or c) selling out.



Three years on, he still feels ’c’ was right.



But Rupert Howell, HHCL’s managing partner, insists mid-sized shops can

thrive. ’If you sit in the middle wallowing, the only option is to sell.

It is about having a truly competitive offering.’



Two years ago, Howell reinvented his agency as a ’3D’ communications

shop. Senior talent was allowed to grow within off-shoots such as

Michaelides and Bednash, and the HHCL Brasserie. ’No-one could

understand why we were changing when we were doing so well,’ he laughs.

’But if we hadn’t, we could have had problems. Simons Palmer was a good

agency but didn’t have a point of difference.’ As for globalisation,

Howell is sanguine: ’Fifteen per cent of our business is international.

We’ll win some and lose some.’



Clients, too, suffer from globalisation mania. Three weeks ago, Esso UK

was forced to put its account up for pitch after Shell pooled its

pan-European advertising into JWT. Similarly, Mercedes needed to remove

its UK advertising from Leo Burnett after Fiat, an international client,

complained. Mercedes’ pitch-list was largely domestic, and by awarding

the pounds 9 million account to BDDH last week, the car company has

given some security to another squeezed, mid-sized independent.



Martin Jones, managing director of the Advertising Agency Register,

which helped Mercedes with its shortlist, contends that while conflict

remains an issue, medium-sized agencies will always be needed. In

choosing BDDH, Mercedes ’knows it won’t get stung by international

realignment, and that the agency is big enough to service its business’.

Mid-sized shops benefit from maverick clients too: take Coca-Cola, which

has splintered its line-up from one or two worldwide agencies to more

than 30.



Mavericks and domestic clients may not be enough, however.



Jim Kelly, managing partner of Rainey Kelly Campbell Roalfe, knows his

in-vogue agency will need to make decisions in a few years.

’Medium-sized agencies offer neither the bedside manner of founding

partners, nor the clout of multinationals.’



And yet Simons insists globalisation didn’t drive him to sell. After

all, Simons Palmer handled international business such as Sony

Playstation.



More persuasive were dreams of grandeur - taking income above a ’glass

ceiling’ of pounds 5 million or so. ’Getting on to the next rung means

winning an account like British Airways. We could have kept growing

steadily but we thought, ’Wouldn’t it be better to have a leg-up into

the bigger division?’’



The big exception is Bartle Bogle Hegarty, still strong after 15

years.



More than half its business is international and the agency has recently

opened in Singapore (a shop is mooted for the US). John Hegarty, BBH’s

chairman and creative director, says: ’You only need a number of

companies to give you an opportunity.



We are not trying to compete with the likes of McCanns. We are a

different type of international agency.’



Puris, however, believes even the mighty BBH will eventually sell to a

network. ’Its international plan won’t work. It might with one or two

clients, but for most there’ll be too many offices in between that

they’ll be missing.’



Is this the end, then, for mid-sized shops? Martin Sorrell, the WPP

Group’s chief executive, thinks not: ’People will continue to leave

agencies in a healthy Darwinian-like process to form new agencies.’ And

those new agencies will one day be medium-sized, raising the prospect of

acquisition or reinvention all over again.



Last September, the GGT Group joined the multinational grown-ups by

tying-up with BDDP, but in the UK, GGT remains mid-sized. And troubled:

last week it lost Nationwide, which represented almost a quarter of its

billings.



Company              Previous number   Current number of

                         of agencies         of agencies

Bayer                             48                   3

IBM                              40+                   1

Reckitt and Colman               35+                   1

S. C. Johnson                     28                   2

Kodak                              4                   3

De Beers                           2                   1

SOURCE: WPP/trade press



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