Close-Up: Live Issue - New breed of predator eyes independents

The stock market has welcomed the resurgence of acquisition activity in the marketing sector. Bob Willott investigates.

This month's announcement that Delaney Lund Knox Warren & Partners is selling up to the publicly listed Creston group highlights the renaissance of acquisitive marketing services companies on the London Stock Exchange.

But the newly emerging players are very different from most of those that appeared in the 70s and 80s. In those days, the majority of stock-market newcomers from the marketing sector were well-established single-discipline businesses, such as Abbott Mead Vickers.

This time, most of the newcomers started with nothing but a balance sheet, and are unashamedly harvesting existing businesses. The three most active companies are Creston, Media Square and Cello Group, and they follow the precedent of WPP. So why has the stock market welcomed this new batch of harvesters?

It's a simple matter of supply and demand. In a bull market, investors look for deals that add excitement and capital gains to their portfolios.

And the marketing services sector is a natural supplier of deal fodder as it breeds a constant flow of start-ups, buyouts and breakaways whose owners tend to want to sell out within a decade or so.

But why should a former Saatchi & Saatchi executive such as Creston's Don Elgie, a former director of a PR consultancy such as Media Square's Jeremy Middleton, or Cello's Kevin Steed and Mark Scott want to build such a group? In short, they are all entrepreneurs, and they all seem more interested in dealing with finance than clients.

"There were very few players on the market and they were all either mature or focusing on a single discipline, so I felt there was room for a new growth stock," Elgie explains.

"In ten years, I see Creston as an international diversified marketing services group in six or seven countries."

Steed and Scott may be driven in part by a desire to do for themselves what they have watched others do before. Steed was the first finance director of the publicly quoted Incepta Group. He later took the chair at Media Square before choosing to do his own thing. Scott learned the acquisition business with WPP, then reappeared as a supporting act in the Great Lighthouse Legacy when two Chicago wheeler-dealers acquired a basket of mainly British companies - including Fitch and Financial Dynamics - and packaged them up as Lighthouse Global Network for sale at £367 million to Cordiant Communications Group.

Scott denies he wants to make a quick buck in the Lighthouse way. "I'm not doing that," he says. "We want to become the UK's best marketing communications group."

Middleton's initial motivation at Media Square was more necessity than some long-term strategic goal. In 2002, he was wooed by the AIM-listed Media Square with a view to selling them his own little business, Equinim.

"They claimed they were making a small profit, but we discovered they would have gone bust by Christmas," he says.

Middleton reckoned Media Square - saddled with debts of some £2 million - would have had to achieve annual revenue of £30 million and a market capitalisation of a like amount within three years to retain credibility as an AIM stock. He set about buying up troubled businesses, until he had the financial muscle to pay proper prices, culminating in the purchase of Coutts Holdings. He achieved those initial targets in just two years.

But unlike Creston and Cello, Media Square is building a predominantly retail and home-shopping marketing business.

To attract companies that will provide sustainable profits growth, the acquirers need to be credible. This tends to be judged by the quality of their past acquisitions, their ability to pay competitive prices with a significant cash element, the post-acquisition working environment, and the potential for personal and corporate development within the group.

In 2001, Creston could offer only a philosophy, market knowledge, a big bank balance and the status of a company already listed on the Stock Exchange.

Since then, Elgie has bought six businesses.

"We can now do deals involving an initial cost of £20 million," he reckons, which puts Creston ahead of its AIM-listed rivals - for now.

Elgie believes he runs the group with a light consensual touch: "Why interfere if they are growing well? It can damage the culture."

Cello is trying to foster a "partnership" culture where vendors are "joining in" rather than "selling out". Each marketing sector has a "platform leader" and they meet regularly to review progress and to approach acquisition targets.

Cello, Creston and Media Square all expect vendors to remain shareholders in the group. At present, some 40 per cent of Cello shareholders are insiders.

At Creston, where every purchase involves a Creston share issue, no working vendor has sold any shares yet. Furthermore, 42 per cent of group staff have joined the Share Save scheme.

"The objective is to encourage the entrepreneurial spirit of the existing business," Middleton says.

Participation rather than pressure seems to be the management theme at all three groups, but what will they do when the economy takes a dip and their companies' profits come under pressure? What if the companies were to become too aggressive with acquisitions in the good times, over-reach themselves and run up heavy debts as a result? Creston claims to be taking a cautious approach. "We're not going gangbusters," Elgie says.

All three companies pay for acquisitions with a mixture of cash and shares.

"We're not going to take on £50 million of debt, we're not going to make too many acquisitions and we're not going to pay over the odds," Scott says.

Both Creston and Cello reserve the right to settle earn-outs in shares or cash, which gives them some flexibility. Media Square believes "funny earn-outs" often lead to short-term over-performance at the expense of longer-term stability. "We agree a price for the business and pay it," Middleton says.

So what happens when these three companies achieve their own size ambitions?

Will they in turn be gobbled up by the global colossi? They all say no, but they would, wouldn't they?

- Bob Willott is the editor of Marketing Services Financial Intelligence ( and a special professor at the University of Nottingham Business School.


CLEMMOW HORNBY INGE - Set up by Simon Clemmow, Johnny Hornby and Charles Inge in 2001, it offers advertising, PR, comms planning and DM.

- Clients: Carphone Warehouse

- Nielsen billings: £87.6 million

MCBD - The AMV breakaway turns six this year. It has opened a DM arm called Elvis and backed a content specialist called Amplified.

- Clients: Debenhams, Travelocity

- Nielsen billings: £53.9 million

MOTHER - Mother was formed in 1997 by Stef Calcraft, Mark Waites and Robert Saville, with Andy Medd and Matt Clark joining later.

- Clients: Boots, Orange

- Nielsen billings: £107.8 million

RAPIER - Founded as the direct arm of Charles Barker group. Jonathan Stead led a buy-out in 1987 with John Townshend joining in 1995.

- Clients: AA, Telewest, COI

- Declared billings: £125 million

BOOTH LOCKETT MAKIN - Founded in 1990 by Steve Booth, Nick Lockett and Charlie Makin to offer an independent premium service to mid-sized clients.

- Clients: Thomas Cook, Tele2

- Nielsen billings: £78.8 million

NAKED - Founded in 2000 by John Harlow, Jon Wilkins and Will Collin. It has since launched overseas arms and a number of joint ventures.

- Clients: Honda, Nokia

- Declared income: £4.6 million

PARTNERS ANDREWS ALDRIDGE - Founded by Phil Andrews and Steve Aldridge in 1998 as a creatively led DM agency. It cut its links with Havas in 2004.

- Clients: RAC, Sky, Lloyds TSB

- Declared income: £3 million

VCCP - In 2002, Rooney Carruthers and Charles Vallance joined forces with Adrian Coleman and Ian Priest to seize O2 from AMV.

- Clients: O2, Coca-Cola

- Nielsen billings: £72.7 million

GLUE - Set up in 1999 as gluemedia with Deepgroup, Glue broke away with St Luke's before becoming wholly independent in 2004.

- Clients: T-Mobile, COI

- Declared income: £2.7 million



Chairman: David Marshall

Chief executive: Don Elgie

Market capitalisation: £55 million-plus (after Delaney Lund Knox

Warren & Partners deal)

Deals done to date: Six

Acquisitions to date: Marketing Sciences (Jan 2001), The Real Adventure

(Nov 2001), EMO Group (Dec 2002), Nelson Bostock Communications (Oct

2003), CML Research (Sept 2004), Face Communications (Delaney Lund Knox

Warren & Partners) (Feb 2005)


Chairman: Robert Essex

Chief executive: Jeremy Middleton

Market capitalisation: £50 million

Deals done to late: 11

Acquisitions to date: Fourninety (Jan 2003), FI Direct, Brand New Media

(Feb 2003), LeFevre Communications (May 2003), Banc (July 2003),

PrePrint Imaging (Oct 2003), Hudson Advertising & Marketing (Feb 2004),

Marketplace Design (Mar 2004), IAS Group (June 2004), Clark McKay &

Walpole (Sept 2004), Arnold Interactive (Oct 2004), Coutts Holdings (Oct



Chairman: Kevin Steed

Chief executive: Mark Scott

Market capitalisation: £36 million

Deals done to date: Four Acquisitions to date Silvermill Holdings (The

Leith Agency) (Nov 2004), Target Direct (Holdings) (Nov 2004), Insight

Medical Research (Nov 2004), Navigator Responsive Advertising (Jan