Champagne corks were popping in Delaney Lund Knox Warren & Partners' Covent Garden office last week and this time it wasn't to celebrate its latest new-business win. Six of its management have just become millionaires after selling their agency to the little-known Creston Plc for a potential £38.2 million.
DLKW becomes the sixth company within Creston, alongside two market research agencies, Marketing Science Group and CML Research, the PR agency Nelson Bostock and the two marketing communications companies, The Real Adventure and EMO Group.
The deal sees Mark Lund, the DLKW chief executive, and Greg Delaney, the agency's chairman, each land a potential £4 million in cash as well as £1.8 million in Creston shares. The senior management team of Tom Knox, Richard Warren, Malcolm Green and Gary Betts stand to gain £2 million in cash and £860,000 in shares each.
"DLKW has got a good price," one financial expert remarks. "It implies that other competitors were also trying to buy the agency and some negotiating went on."
So Creston has gone from a company few had heard of to the subject of some interest. Don Elgie, the chief executive of Creston and the founder of the ad agency Elgie Stewart Smith in the 80s, says this was one of the intended results. "Buying DLKW, which has been such a successful agency, is bound to increase our profile and help us attract equally high-profile agencies here and abroad," he says.
It will also go a long way to convince the City that Elgie knows what he's doing. DLKW has a healthy profit margin of 19 per cent. "I was not overly impressed with Elgie's track record but this makes me more comfortable with Creston," one financial analyst says. "It has reached a critical mass and now I'd expect 25 to 50 per cent growth per annum through further acquisitions and organic growth."
Elgie anticipates some of this organic growth will come from his group companies working together. "The acquisition is great for all the agencies in the group. Nelson Bostock is wetting its pants to work with DLKW," he says shamelessly.
Peter Mead, the vice-chairman of Omnicom, cautions that while good examples can be found of such disparate companies working together effectively, it does depend on the companies involved. "It's imperative that they share a common DNA - force-fits don't work," he asserts. With eight months of chemistry meetings before the deal was agreed, hopefully such an integral point has been covered.However, Elgie's next acquisition could be Creston's defining moment. Having filled the creative agency chink in his armoury, he says his next step is to move into choice international markets.
Elgie needs to be wary in this expansion strategy - history shows other small companies, such as WCRS and Michael Peters in the 80s, came unstuck when they tried to make a noise in foreign markets. One observer warns: "Creston must not bet the bank on any companies that are too big or too risky." Creston would do well to bed in its UK operations before realising its overseas aspirations.
DLKW doesn't seem concerned about Creston getting involved internationally; on the contrary, Delaney sees it as one of the deal's advantages. "It's great being part of a small, independent agency, but you do lose out if you don't have international reach," he says.
As DLKW becomes the largest group on the Creston board, it will be hugely influential in selecting the right partners for it to work with in foreign markets. However, the chances of Creston being able to create a credible network are questionable.
DLKW is currently on top form, and as well as churning out new-business wins (it won ten pitches in 2004, adding £54 million to its billings), it is acclaimed for achieving a rare buzz of excitement. This, combined with a tight group of partners, has translated into a good business and a distinctive culture.
One of the key benefits of the Creston deal, Delaney says, is that this culture will be preserved. "We have been approached by lots of companies but they always wanted to change us. We like the way we are, it's the reason for our success, so why would we change?" he says.
He is quick to explain the deal was a unanimous decision, scoffing at rumours he and Lund were more keen to sell than the other partners. "There was never any division and this deal was not a compromise," Delaney says.
For his part, Elgie dismisses the suggestion he might sell Creston to a holding company. "I'd rather stick pins in my eyes," he says. And, without irony: "I want to build Creston into a mid-market quality player that will be up in lights long after I've gone. WPP's not selling, it's buying and I don't see why I should be doing any different."
So the deal looks good for both sides. Mead sums it up perfectly: "We used to say that both parties should leave a deal with a balloon and this is one of those deals where they both do."
DON ELGIE: THE LOWDOWN
Don Elgie's return to the ad industry spotlight last week caught even those who could remember him by surprise. In his advertising heyday, those who kew him at the time say, he was not quite a man you'd imagine was destined for greatness.
Elgie started his career at Gallaher as a graduate trainee and then switched to the agency side, working as a suit at Grey, Davidson Pearce Berry & Spottiswode and Saatchi & Saatchi. It was a grounding that gave him the confidence to launch Grandfield Rork Collins at the end of the 70s, which was sold to Saatchis in the mid-80s.
Another launch came in 1987. The first London agency to be set up as a publicly limited company, Elgie Stewart Smith was set up with £1 million of venture capital. But by 1990, after an unspectacular performance and a somewhat messy merger with Deighton and Mullen, Elgie sold out and pretty much dropped off the industry radar. Investments in a number of consultancies and marketing services companies followed, until the launch of Creston in 2001.
Creston was a former cash shell with a stock market listing. Elgie reversed his Synergie Consulting into Creston to found a new marketing services operation. The company's turnover has grown from £9.8 million in 2002 to £29.5 million in 2004, with pre-tax profits of £2.09 million - an increase of 129 per cent on the previous year.
Now, the acquisition of Frace Communications, the holding company for DLKW, is being financed with an initial consideration from Creston's £5.5 million of cash reserves and a placing and open offer for new shares in Creston worth £9.5 million. Next on Elgie's shopping list could be an online ad agency and a media independent, as well as international acquisitions.
So Elgie has big plans. The 58-year-old - son of a sales director father and a physiotherapist mother - says he grew up with a good work ethic. At school, he was the captain of the rowing and cross-country teams before graduating with an HND in business studies and marketing.
A 1990 Campaign profile of the man outlined Elgie's ambition to find an agency that "needs to be licked into shape". The article concluded thus: "For a man who has blurred his own tracks so successfully, it is ironic that Elgie should now promote himself as the one to sharpen up others." He is still trying.