History's lessons on what happens when private equity meets marketing are largely cautionary. The traditional approach for highly leveraged buy-outs was to find a failing company, buy it for a rock-bottom price, then turn it around in as parsimonious a manner as possible in order to maximise profits when the time came for the sell-on. Among the inevitable cost cuts, the marketing budget was a soft target.
Mother could be forgiven, then, for eyeing KKR's imminent £11.1 billion takeover of Boots with considerable wariness. After all, KKR was the victor in the 1988 battle for the cereal giant Nabisco; a notorious $25 billion deal, which left the company saddled with a crippling debt, eventually leading to its downfall. Swingeing marketing budget cuts along the way only hastened the demise.
Private equity, though, has spent the past two decades slowly changing its attitude towards marketing. And with good cause - the once ruthless financial engineers who came on board to asset-strip failing companies now find themselves stewards of many of the world's most famous brands. In the UK alone, Boots is joining brands including Birds Eye, the AA, Weetabix and Debenhams in the ranks of household names which are - or have been - private equity-owned.
And as such, investors have changed their approach to advertising. Agencies argue that the "cut and save" attitude of old has vanished. Likewise, private equity's tendency to shy away from brand advertising in favour of a hard sell approach wherever possible has softened.
"Private equity owners don't differ wildly from any other owners now," a senior agency executive says. "If they've bought a brand, they're going to look after it, because the next buyers will be interested in how famous the brand is and will want to know that it's been cared for."
This means that marketing directors find themselves in the unusual position of controlling increased budgets following private equity takeovers, not reductions. According to Ali Jones, the Debenhams marketing director, it is "absolutely not true" to say that private equity doesn't understand the importance of marketing.
Debenhams was sold in a private equity deal in December 2003; the company was refloated on the stock market in May last year for £1.7 billion. Jones was the marketing director throughout the process.
"When we went to private equity, the commitment to marketing continued and increased," she observes.
Nielsen Media Research figures back this up. In the 12 months before Debenhams' private equity deal went through, the store spent £26 million in audited media. That figure rose by £1 million in the year after the sale.
Such figures aren't a one-off at Deb-enhams. Although the private equity companies Permira and CVC Capital cut 3,400 jobs within months of buying the AA from Centrica for £1.75 billion in October 2004, the marketing budget didn't suffer a similar fate: Nielsen figures reveal adspend of £18.1 million in the 12 months before, and £20.1 million in the 12 months that followed.
"If private equity were coming in with the intention of trimming things for a quick sale, loads more would be doing it," an agency executive says. "They're in it for long-term growth."
But private equity has other ways of making cuts, and the increased likelihood of a procurement-led review of creative and media duties, following a sale to a private equity fund, means fewer agencies with accounts undergoing a change in ownership have much to look forward to.
Again within months of the October 2004 deal, the AA reviewed media and creative, ending relationships with Manning Gottlieb OMD and HHCL/Red Cell, and appointed PHD and Delaney Lund Knox Warren & Partners in two independent reviews. FCB London held on to Weetabix for 11 months after the Texan-based investment company Hicks Muse Tate & Furst bought the iconic brand in November 2003, but lost the account to DDB London in October 2004.
The latest casualty to suffer the fate of what increasingly looks like a knee-jerk propensity for private equity owners to insist on an advertising review is Bartle Bogle Hegarty, whose Birds Eye account has shifted to Abbott Mead Vickers BBDO following Permira's acquisition of the brand from Unilever in a £1.6 billion deal in August last year. Indeed, every single one of the eight agencies on Birds Eye's roster has now changed.
Martin Glenn, the Birds Eye chief executive, parachuted in by Permira to oversee the turnaround at the frozen-food brand, acknowledges private equity deals often require a certain amount of cost cutting. However, he denies that the Birds Eye advertising review has been procurement-led.
"All the deals now require structural cost savings, but they're rarely enough to justify the price they're paying for the assets," Glenn says. "The business case on the big deals is to do with top-line turnaround. Permira knows we'll do that by stimulating demand."
Glenn, the former PepsiCo president, is dismissive of the tendency of agencies to cavil about private equity's perceived lack of understanding of "good" advertising.
"Nobody wants nebulous advertising. PepsiCo didn't want anything that wasn't driving sales. You're trying to get sustainable growth, not short-term growth driven by price cuts that you can't afford, and you want to build a brand that means something with consumers, even in the world of packaged goods."
Private equity investor: Hicks Muse Tate & Furst (now HM & Partners)
Sale date: November 2003
Sale price: £642 million
Few brands have been tossed about on the choppy seas of private equity ownership more than that British breakfast staple Weetabix.
Weetabix had overtaken Kellogg's Corn Flakes as the best-selling breakfast cereal in 2002, a feat that coincided with a high-tide marketing investment of £30 million.
FCB London, the incumbent on the account since 2001, was ditched just under year after the investment company Hicks Muse Tate & Furst paid £642 million for the brand in November 2003.
However, by the time that DDB London picked up the account in December 2004, that spend had been cut to just £6 million. Another advertising review followed in February 2006, which resulted in the account landing at WCRS, where it resides to this day.
The marketing budget before and after the sale makes dismal reading - in the 12 months following HM & Partners' takeover, adspend was cut by 50 per cent to just £6 million, although that figure was back up to £13 million in 2006, according to Nielsen Media Research.
Creatively and strategically, Weetabix's advertising today is a world away from the "withabix/withoutabix" brand positioning of seven years ago (dreamed up by Lowe Lintas), and it's very difficult to argue that this is anything other than the result of its acutely sales-sensitive owners.
A shortlived experiment at DDB with a scarecrow who'd lost his scare has given way to an infomercial-style campaign from WCRS, which has led to strong sales. In fact, the agency's IPA Effectiveness paper on the campaign claims it is the most effective that the client has ever run, contributing 1.3 million kilogrammes of volume to the Weetabix brand in its first six months, and attracting 100,000 new customers in the same period. Some would argue, however, that the short-term sales fillip will come at the cost of the Weetabix brand, and, therefore, its long-term sales potential.
£11.5m - 12-month pre-sale adspend
£6.2m - 8-month post-sale adspend
Private equity investors: Permira, CVC Capital
Sale date: October 2004
Sale price: £1.75 billion
Since the October 2004 £1.75 billion sale of the AA by Centrica to Permira and CVC Capital, the company has come in for sustained criticism in the press for what is viewed as ruthless cost cutting by its private equity owners.
Within months of inking the deal, the service made 3,400 redundancies. In April this year, night patrols were axed in a move that unions say is symptomatic of the asset-stripping mentality that pervades the organisation.
City analysts have predicted that the extensive restructure carried out under the chief executive, Tim Parker, is preparing the AA for either sale or float later this year, for as much as £3 billion.
Against this unsettled backdrop, the AA sales and marketing director, Kerry Cooper, has presided over a shift in advertising focus, in which the previous reliance on direct- response TV has been reduced in favour of what is a more emotive brand campaign.
In pursuing this approach, no expense was spared. Delaney Lund Knox Warren & Partners commissioned Tony Kaye to direct its "you've got AA friend" blockbuster ad.
This coincided with a dramatic increase in marketing spend. Cooper estimates that spending on roadside assistance was at around £12 million before the deal, and now stands at £25 million.
"I looked at where the biggest financial returns could be made for the business. The biggest return is in retaining customers," Cooper says. "Private equity businesses are all looking to maximise the value of the companies they own.
"With the AA, the value is the customer base. So, for me, it was a relatively easy job to persuade them that investing in the brand was the right thing to do for long-term investment."
£18.1m - 12-month pre-sale adspend
£20.1m - 12-month post-sale adspend
Private equity investors: Texas Pacific, CVC Capital Partners, Merrill Lynch Global Private Equity consortium
Sale date: December 2003
Sale price: £1.9 billion
Debenhams is one of the greatest private equity success stories in recent times. The department store group went private in December 2003, following a hard-fought bidding war between Permira and the victorious Texas Pacific, CVC Capital Partners and Merrill Lynch Global Private Equity consortium.
The private equity owners invested £600 million of equity in the company, tripling their investment when the chain refloated on the stock market in May last year for £1.7 billion.
Rather predictably, though, once private equity had come on board at Debenhams, an advertising review was called.
"We were asked to review all of our marketing to ensure best value was given," the Debenhams marketing director, Ali Jones, says. As a result of the review, the account moved out of WCRS and into the hands of Miles Calcraft Briginshaw Duffy. Although media was reviewed, it remained with Carat.
The department store chain has always adopted a tactical approach towards advertising, often centred on its Blue Cross Sale events, and that specific marketing tactic was ramped up under private equity ownership.
Post-sale, however, Debenhams' advertising, which was created by MCBD, is more focused on the brand itself.
"Debenhams has always been famous for its sales and spectaculars, but as Designers at Debenhams has grown to a £400 million business, that's becoming more important," Ali says.
"The style of advertising has evolved, but I don't think the private equity ownership has caused that evolution, other than the fact that I've had more investment."
£27.6m - 12-month pre-sale adspend
£27.2m - 12-month post-sale adspend
Private equity investor: Permira
Sale date: August 2006
Sale price: £1.17 billion
In hiring Martin Glenn to turn around Birds Eye, Permira has shown that City sharks have learned a great deal about marketing.
Glenn's experience as the marketing director at Walkers, where he was responsible for the Gary Lineker campaign, singles him out as one who understands the power advertising has to drive sales. Those close to his decision to move the ad account from Bartle Bogle Hegarty to Abbott Mead Vickers BBDO testify that it was motivated by a desire to replicate the agency relationship he had at PepsiCo, not cut costs.
"I've looked across our European business; it's time to ask, 'What's next?'" Glenn says. "The time is right to move from category-defensive work; we want to build on that to drive a specific brand message."
£16.3m - 12-month pre-sale adspend
£8.7m - 8-month post-sale adspend
Private equity investor: KKR
Sale date: tbc
Sale price: £11 billion
There are questions hanging over KKR's £11 billion takeover of Boots. Most hinge on the private equity giant reaching agreement with the trustees of Boots' pension scheme. The trustees are threatening a High Court action in order to protect the rights of 66,000 members.
Amid such circumstances, the question over what will happen to Boots' advertising budget (which, according to Nielsen Media Research, stood at just shy of £40 million for the year to 31 December 2006) pales into insignificance.
Should KKR follow other private equity deals, Mother and MediaCom would have cause for alarm. More often than not, accounts embark on a procurement-led review within 12 months of the sale going through.
But Stefano Pessina, the Boots executive deputy chairman, and Richard Bacon, the chief executive, have pledged their futures to Boots.
Their intent is to make Boots a global healthcare giant. In doing so, marketing spend is predicted to rise. Stability is key, which means Mother and MediaCom may find themselves long-term partners with private equity.
£40m - Current adspend.