Close-Up: Newsmaker - TMW founders cash in on Creston's expansion

The three founders are taking Creston shares to demonstrate their commitment to their direct agency, Ian Darby reports.

It started inauspiciously, with three men in a room in Stockwell, south London, 19 years ago. However, these three men, the founders of the direct marketing agency Tullo Marshall Warren, could make in excess of £10 million each following the sale of their business, now based in the affluent environs of Chelsea's King's Road, to the marketing services group Creston plc.

Paul Tullo, the board creative director, Richard Marshall, the business development director, and Chris Warren, the managing director, along with a handful of senior employees, are the shareholders in what was the UK's largest remaining independent DM agency.

This is set to change with Creston, the owner of a portfolio of agencies including Delaney Lund Knox Warren & Partners and the PR business Nelson Bostock, offering a total that could reach £38.3 million for TMW and its sister operation, the print and production company Columbus. Creston is paying £19.3 million in cash and shares for TMW, plus £2 million for Columbus.

A further £17 million will be payable to the TMW shareholders, dependent on profit targets being hit over the next three years. In a separate deal, Creston is also paying £37.2 million for the research company ICM Research.

Creston's chief executive, Don Elgie, cites TMW as "best of breed" within its sector. His interest in the agency began six years ago, when he was looking to put together the marketing services group that eventually became Creston. An initial meeting with Warren did not lead to anything, but a year ago Elgie was back in touch. Talks intensified in recent months and an agreement was reached last week.

Elgie addressed the TMW troops last Wednesday evening, but Marshall is at pains to point out that this was not the cue for wild celebrations.

"The nature of the business is to remain true to itself. There's been no guzzling of Champagne going on - this is a hard-working agency," he says.

Marshall explains: "It's a period of quiet celebration. We didn't know how people would react. There could have been the reaction that here are three rich old devils disappearing into the sunset. But we've been comforted by the fact everybody has so far been supportive."

So what is Creston getting for its money? In short, a top-ten direct agency with a loyal and expanding client base; more than 200 staff; and profits in 2005 of £3.1 million. Key clients such as British Airways and Diageo have been with it for many years and an impressive new-business run last year added the likes of Lloyds TSB, GNER, Home Choice and the Energy Savings Trust.

TMW has a good reputation in the DM world, based on consistency and work that produces strong results for clients; an agency that in its own market has similar values to its new sister agency DLKW.

It might not be bunched among the creative hotshops, but then TMW has been more consistently profitable than some of the more fashionable independents.

Creston hopes its strength in data and digital will add something new to its group offer and industry experts seem to think it represents good value. The terms of the deal for TMW Group mean Creston is paying a multiple of 6.3 times profit before tax, highly competitive compared with other recent deals made in the marketing services sector. One reason for this might be that profits for TMW in 2005 rose by more than 800 per cent, growth that may prove impossible to match year in, year out.

Marshall admits TMW had been courted by most of the major holding companies before doing the Creston deal. One source says Omnicom was very impressed by TMW and the agency ticked all the right boxes in terms of financial performance. However, the source said Omnicom had concerns about the age of the founders (Warren and Marshall are 48, while Tullo is 49) and their ongoing commitment to the business.

However, Marshall is adamant the founders' passion is unabated: "One of the proofs we are committed to the business is that part of the remuneration is in sizeable shares in Creston itself, so we have an imperative to grow TMW and contribute to the growth of Creston."

So why sell to Creston when larger groups were also interested? "It was a big emotional thing for us that we joined a group that was capable of preserving the culture and style and the way we do business," Marshall says. "The partners have built a certain DNA and it was a major attraction to be able to keep this and to have no interference from the group company."

Observers say that directors of businesses that join Creston have considerable input into its future direction through positions on its operations board.

Jim Surguy, the senior partner at Results Business Consulting, which advised on the DLKW sale to Creston, says: "Creston is not in the business of buying broken or turnaround companies - its criteria are strong management and strong profits of more than £1 million. And almost anybody with a fair chance will have tried to buy TMW - it has a very good reputation in its market."

HOW THE DEALS COMPARE TULLO MARSHALL WARREN Date: April 2006 Purchaser: Creston Potential total payment: £38.3m Up-front payment: £19.3m Pre-tax profit (to Dec 05): £3.37m Multiple: 6.3 Details: Creston's initial £19.3 million outlay for Tullo Marshall Warren sees it paying a multiple of 6.3 times on pre-tax profit - a highly competitive multiple compared with other recent deals made in the marketing services sector. The TMW partners have a three-year earn-out deal. GLUE LONDON Date: August 2005 Purchaser: Aegis Potential total payment: £14.1m Up-front payment pounds: 5m Pre-tax profit (to Dec 04): £239,000 Multiple: 20.9 Details: At face value, glue London's deal appears to be the best, with Aegis paying a 20-times multiple based on the agency's 2004 pre-tax profits. The deal, which comes with a three-year earn-out, was struck on projected earnings, with the agency predicting turnover of £4 million for 2005. MCBD Date: August 2005 Purchaser: Cossette Potential total payment: £27m Up-front payment (for 51 per cent): £7.8m Pre-tax profit (to June 04): £553,747 Multiple: 7.0 Details: Cossette initially took a 51 per cent stake in Miles Calcraft Briginshaw Duffy, with the option of taking a further 24 per cent after three years and the final 25 per cent two years later. The four partners will need to double the size of the business within the allotted five years to make the full £27 million. VCCP Date: July 2005 Purchaser: Chime Potential total payment: £30m Up-front payment: £14.5m Pre-tax profit (to Jan 05): £913,163 Multiple: 15.8 Details: The VCCP deal sees half the £30 million total paid by the creation of 25.5 million shares that the partners cannot sell for 18 months. The four founding partners each owned a 20 per cent stake in the company, while 19 employees shared the final 20 per cent stake. DLKW & PARTNERS Date: February 2005 Purchaser: Creston Potential total payment: £38.2m Up-front payment: £19m Pre-tax profit (to March 05): £2.04m Multiple: 9.3 Details: Creston's deal with Delaney Lund Knox Warren & Partners could see Mark Lund, the chief executive, and Greg Delaney, the chairman, walk away with £6 million each if the agency achieves three-year targets. The remaining partners - Tom Knox, Gary Betts, Richard Warren and Malcolm Green - all stand to gain as much as £3 million each.

Note: All multiples have been based on up-front payment divided by most recently filed pre-tax profits at Companies House.

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