LIVE ISSUE/ADVERTISING AND THE CITY: Is the City falling in love with advertising afresh? - Richard Cook looks at the City’s apparently renewed interest in the ad industry

It seems we all get the decade we deserve. Small wonder then that Kevin Keegan couldn’t cut it in the 90s. And so it is with advertising agencies. It was the 80s that showed them off to best effect - all that glitz and glamour, all those dreams of what might be, all that potential out there just waiting to be packaged and sold.

It seems we all get the decade we deserve. Small wonder then that

Kevin Keegan couldn’t cut it in the 90s. And so it is with advertising

agencies. It was the 80s that showed them off to best effect - all that

glitz and glamour, all those dreams of what might be, all that potential

out there just waiting to be packaged and sold.



Certainly the City thought so. For a time, adland was the hottest ticket

in town. Right up to and beyond the point that Saatchi and Saatchi set

its sights on the Midland Bank, the media sector could do no wrong.

Better still, it was the new international agency networks that appeared

to the fore.



But that was then. A mass of restructurings, profit warnings and

mountains and mountains of debt took the gloss off things - as they tend

to do.



When the City awoke gingerly from the excesses of the 80s, it was with a

new determination. Specifically, it was with a vow to cut out the really

harmful stuff, the companies that were bad for its corporate heart. This

determination meant no junk bonds or penny stocks, while sectors such as

property and, of course, the media, were to be taken in moderation, and

then only if it was absolutely necessary.



But a little of what it fancied had obviously done it good and, for the

first time since the halcyon days of the 80s, it seems that adland is

fighting its way back into favour.



’There is a general air of optimism about the media sector in the City

right now,’ the CIA chairman, Chris Ingram, who has enjoyed mixed

relations with the square mile, agrees. ’There’s a lot of money around

and very little looking back to the bad old days when - let’s face it -

media companies bought businesses very expensively and then really

suffered as the recession bit in.’



This time, though, the revival is being led by the media owners and

agencies are gratefully enjoying the ride on their coat-tails. The likes

of Granada and Carlton have illustrated just how much value there really

is in the media these days, while BSkyB has grown from being an obscure

corporate joke, Rupert Murdoch’s bridge too far, to a widely admired

media colossus with a market capitalisation of pounds 11 billion.



On a rather smaller scale, if hardly less significant as an indicator of

the media’s resurgent prestige in financial circles, is the deal being

completed between GGT and the international agency network, BDDP. The UK

group is paying pounds 96 million for a seat at advertising’s high

table. BDDP is hardly the most dynamic or fiscally prudent of the agency

networks, but it is on the Procter and Gamble roster, has remarkably few

client conflict problems with the GGT agencies, and is the 15th largest

advertising agency group in the world.



But the really unusual aspect of the deal is that the City has given its

wholehearted blessing. Just consider the bare facts - a smaller agency

group is swallowing up a company significantly larger than itself: 40

per cent of the deal is being financed by shares, not cash. Worse, BDDP

has net current liabilities and, most revealing of all, it reported

post-tax profits of just pounds 3 million in 1995 and around pounds

450,000 in the eight months to August 1996. On those figures alone the

purchase price seems steep.



They are the sort of numbers last seen in the 80s and offer the most

persuasive evidence that City confidence in adland is on a steeply

upward curve. Because they reflect that the City is once again prepared

to look beyond one year’s earnings multiples to the strategic

possibilities that lie just beneath the surface.



’Certainly my experience of dealing with the City suggests there is

renewed confidence - even if it is still complicated by the fact that

there has been so much silliness in advertising,’ the GGT chairman and

chief executive, Michael Greenlees, reckons. ’But then we have a track

record of prudent overseas acquisitions, which obviously helps.’



Another company whose track record has exempted it to a large extent

from the City’s distemper with adland is the Abbott Mead Vickers

group.



’The City first fell in love with advertising because it is a business

with a strong cash flow, relatively small fixed overheads, able to be

pretty nimble on its feet and not dominated by one or two big players -

there is still lots of market share up for grabs,’ the AMV chairman,

Peter Mead, explains. ’That’s a powerful list and what we are now seeing

from the City is a certain re-acceptance of that original appeal.’



What now seems likely is that we will see the City step up a gear in its

relations with adland, not least because in a business still peopled by

dynamic entrepreneurial companies, the City can offer the best chance

for the men with their name above the door to cash in some of their

chips.



Paul Simons completed a different deal with the merger of his business,

Simons Palmer Clemmow Johnson, into TBWA, but admits he looked closely

at the idea of City involvement, of reversing into a quoted

business.



’There are two main advantages,’ he explains. ’If you want to take some

cash out of your business you have very few options, but the City is one

of them. And if you are ambitious for your business, the City can offer

access to funds unavailable elsewhere. It wasn’t right for us, but it

would be surprising now that the City seems keen on advertising again,

if it wasn’t soon right for somebody.’



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