Close-Up: Live Issue - Why CHI decided the time was right to 'do a BBH'

CHI's deal with WPP will make its founders very rich, but also secure future growth for the shop, James Hamilton writes.

Sir Martin Sorrell might have been forgiven for thinking Clemmow Hornby Inge was playing an elaborate April Fool's Day joke on him when the founding partner Johnny Hornby asked to meet him at Heathrow Airport at the start of the month.

Hornby, it's said, had ignored the overtures Sorrell made ever since he read a quote from the Havas chairman, Vincent Bollore, in the 9 February issue of Campaign that Havas was "weeks away" from an agreement. CHI and Havas, it transpires, had agreed to a period of exclusivity for March. Hornby was only free to talk on 1 April.

Unluckily, that date coincided with a family skiing holiday, so Sorrell flew in from San Francisco, for a meeting with Hornby at the airport and then jetted back to California on the next flight.

During that 40-minute meeting, the pair sketched the skeleton of a deal which, despite the best efforts of the Havas chief executive, Fernando Rodes, had eluded the French holding company for the nine months since it began talks with CHI in Cannes last year. In just nine days, the ink was dry on the WPP/CHI contract. Sorrell has taken a minority share of the agency and has scored an unexpected victory over his French rival.

Bollore denies that Havas was ever close to a deal, claiming Rodes and CHI never got beyond the discussion stage. "Sorrell has moved quickly on this, but the fact is that we were not interested in a 49 per cent stake. Within Havas we have a policy of focusing on our business, and we need to be a majority shareholder," Bollore says.

However, an insider close to the deal says Havas was far closer than this, that CHI had signed heads of terms with the French holding company and that the deal was scheduled to go through in the second week of April.

Hornby declines to comment on the Havas "deal" and will only say that "the WPP deal was a no-brainer, given the size of its network and the full-service and international ambitions we want to achieve".

The deal is remarkably similar to that which Bartle Bogle Hegarty signed with Leo Burnett in 1997. Indeed, Hornby's original brief to Johnnie Goodwin, the Longacre chief executive who brokered the Havas talks, was to "do me a BBH deal". Under its terms, WPP has taken a 49.9 per cent share without the option to take a further 2 per cent at a later date. CHI has no earn-out clauses; payment, which is estimated at the £30 million mark, is up front and in cash.

Based on CHI's £18.5 million revenue figure for the year ended 30 June 2006, it's a good deal; it includes CHI's direct affiliate, Hall Moore CHI, which is now 100 per cent owned by CHI, and CHI's joint venture with Naked, Naked Inside. Both divisions will drop their individual brands as they form part of the group offering.

"WPP will have to look at CHI as an investment and live with it as it is," Bob Willott, the Marketing Services Financial Intelligence editor, says. "It's a novel approach for Martin, and I'm not really sure why he's done it."

"For me, it's the perfect deal because it means we can stay independent," the founding partner Charles Inge says. "A lot of deals rely on earn-out and hitting numbers, but we'll be able to focus on the work; we won't be pitching solely to make money."

The deal with WPP appears to have come about with a mixture of sound business sense and luck. In just six years, CHI has become one of the most admired independent shops in the country.

A good portion of credit for that success must go to Charles Dunstone, the chief executive at The Carphone Warehouse; the fortunes of the retailer and agency have been closely intertwined since the agency was founded in 2001. The luck comes in the timing. Sorrell will have been smarting over the loss of United London. And although CHI will not be assuming that agency's position in the United Group, it will answer the question- mark that hangs over WPP's creative offering in London.

The remaining 50.1 per cent of the company has been placed in an employee benefit trust, allowing the agency to work along the same lines as a law practice. "Staff will get shares and take dividends, and young talent will have the potential to take equity," Hornby explains.

The day-to-day running of CHI & Partners, as version 2.0 of the agency is now called, has been handed to five managing partners: the joint managing directors, Sarah Gold and Neil Goodlad; the creative director, Ewan Paterson; the group chief executive, Nick Howarth; and the finance director, Peter Walker.

"We don't believe traditional models of through-the-line integration are enough," Hornby says. "Our structure allows us to generate creative solutions to a client's problems from the inside out."

Such a deal has been nothing but positive at BBH. Nigel Bogle, the BBH group chief executive, says: "When we did our deal, there were two things we wanted and benefited from: the first is that Leo Burnett and now Publicis acted as a kind of shepherd for us as we expanded globally."

"The second benefit has been when Publicis partners with us when we need help to amplify BBH on a piece of business. For instance, we partner with Leo Burnett on Johnnie Walker in some parts of the world," he adds.

CHI's growth ambitions following the deal lie broadly in two directions. The agency is eyeing the launch of a US office to service the growing international business of The Carphone Warehouse and will likely attempt to replicate its model in one or two other markets for the international Toyota business it shares with Saatchi & Saatchi. Were its project work on Samsung to become more permanent, a Far East office would be likely.

Its second aim is to go full service as part of what the founding partner Simon Clemmow calls "ideas planning". "Ideas planning is about combining all the planning 'silos' (brand planning, direct planning, data planning, digital planning, media planning) certainly into one department, better into one discipline and ideally into one person. Being able to draw on the resources of WPP will accelerate our resource provision and learning in this area," Clemmow says.

CHI & Partners' media buying offering will be "powered by" Group M. Hornby is sketchy on the details of how this will work, although he says it will more likely be a fee-, not commission-based service. How that fee will be shared between CHI and Group M remains unclear - it's just one of the details in the small print of the deal to be thrashed out in the coming weeks.