Perspective: Publicis’ purchase of Fallon McElligott benefits both outfits

Even by current standards of the voracious acquisition frenzy in global advertising, this week’s news of the sale of Fallon McElligott to Publicis will surprise many.

Even by current standards of the voracious acquisition frenzy in

global advertising, this week’s news of the sale of Fallon McElligott to

Publicis will surprise many.



Since opening its doors in 1981, Fallon has made a virtue of being

different.



Opening in Minneapolis went against the grain of the Madison

Avenue-centred geography of the US advertising industry of the time.

Idiosyncratic and entrepreneurially driven, the agency has always

relished its individuality.



What’s more, it appeared to have learned a lesson from its previous

sell-off to Scali McCabe Sloves in 1986 and the subsequent buy-back when

Scali’s owner, Ogilvy & Mather, was in turn absorbed by WPP. Many

expected Fallon to continue ploughing a lone furrow in the middle market

while its peers succumbed to the big advertising groups.



But I beg to differ. The only surprise in Fallon’s decision to sell is

that it has taken so long. For years the agency has professed to hold

global ambitions, while being resoundingly outgunned by the superior

geographical and functional resources of the oligopoly of global

advertising networks.



It was thus faced with a stark choice: either reign in those ambitions

or treat them seriously. With a demanding and determined figurehead like

Pat Fallon driving the agency forward - a man proud to admit, ’I’m one

of the world’s least gracious losers’, following the departure of his

prize dollars 95 million Miller Lite account to Ogilvy & Mather New York

last July - the chance of reigning in those global ambitions were less

than zero.



From Publicis’ point of view, Fallon represents another toe-hold in the

crucial US market. After his crushing defeat by his former partner, True

North, in the battle to take over Bozell, chairman Maurice Levy has

snared a prize to add to his 1998 purchase of San Francisco’s Hal Riney

& Partners.



We can be sure that Fallon and his financial supremo, Irv Fish, will

have examined the Bartle Bogle Hegarty/Leo Burnett marriage and signed

an equally sound pre-nuptial agreement concerning managerial

independence and money.



Talking of money, speculation is the only route available to us in the

case of deals struck by privately owned groups like Fallon. So here

goes ... advertising groups are usually valued on a multiple of post-tax

profits, so let’s apply a conservative valuation of 1.5 times gross

income for the last year for which figures are available (1998 and

dollars 68.5 million according to Advertising Age). That gives a figure

of dollars 100 million, while an upbeat valuation of two times gross

income (factoring in Levy’s desperation factor) would give Fallon and co

closer to dollars 150 million.



Mischievous speculation aside, this deal enables Fallon to break out of

its position as a medium-sized US agency and build a network, while

Publicis can now pursue its US ambitions more seriously. For both sides

it makes eminent sense.



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