Editorial: Grey sale stresses role of client bond

One of the less welcome aspects of the impending Grey Global Group auction is the plethora of private equity companies apparently seeking a piece of the action. Just how real or lasting their interest turns out to be is an open question. Although barely a day passes without another venture capitalist reportedly throwing its hat in the ring, there remains a lingering suspicion that their names are being bandied about by vested interests attempting to bounce serious suitors such as WPP's Sir Martin Sorrell into putting a few extra noughts on his cheque.

The invasion of the industry by private equity companies is a direct result of its enfeebled condition. The sector in general has been downgraded and is vulnerable to the "smash-and-grab" tactics of the financial arrivistes.

Their strategy is simple - swoop on a company that is clearly undervalued and negotiate a deal that offers shareholders a premium. Strip out costs, get the company running efficiently. Sell it on to another major player in the sector or take it public. And all for a nice profit over a comparatively short period of two to four years.

In theory, it sounds simple. But private equity companies may well find that, when it comes to putting theory into practice, the ad industry doesn't conform to the usual rules. For a start, the success of the sale of a group such as Grey is heavily dependent on it retaining its major clients.

They inevitably get nervous when a "For sale" sign goes up. And it's a safe bet that Grey's rivals are even now circling its client roster. Then there's the staff. How many of Grey's best and brightest will want to stay amid such uncertainty?

Moreover, the theory assumes that, with Ed Meyer, Grey's chairman and controlling shareholder, paid off and margins boosted, there will be a willing buyer. That may not necessarily be the case. While Grey may remain interesting to WPP and, maybe, Omnicom, they will not pay through the nose for it.

The truth is that the short-term culture of private equity companies is directly at odds with that of the ad industry, which is about building long-term relationships and the stability that allows it to invest in top talent. Sadly, until stock markets recover, private equity companies are unlikely to retreat from an industry whose welfare they have little regard for.