The road to MBO

WCRS completed its management buyout from Havas this April. Here Julian Hough takes Dominic Mills through his diary of the agency's year-long journey to independence. Advertising has more than its fair share of entrepreneurial spirits.

Ask Robin Wight. The agency he founded has just celebrated its 25th anniversary with a management buyout that has put the close-knit WCRS team back in charge of its own fortunes.

For Wight, Stephen Woodford, the agency's chief executive, Julian Hough, the business development director, Leon Jaume, the creative director, and Debbie Klein, the planning director, 2004 has marked a formal return to the entrepreneurial zeal that defined the agency's launch. This quintet began planning its independent future, outside the fold of WCRS's holding company, Havas, more than a year ago. At the beginning of April this year, the agency completed the deal and a few weeks later celebrated its new independence by winning the £55 million 3 mobile phone account. This is the story of the road to the management buyout, as seen through the pages of Hough's diary.

22 March 2003

Meet with Stephen and Robin, they look incredibly excited (a fairly normal state of affairs for Robin, less so for Woody). They have been in contact with Peter Scott (once the S of WCRS, more recently general Master of the Universe) and he believes the time is right for an MBO. The contrast between signing up to another LTIP and mortgaging myself to the hilt is stark. I feel instant adrenaline despite the hefty cuts to salary and pension.

3 April

Things are moving fast. LongAcre Partners and Osborne Clarke are appointed corporate finance and legal advisers respectively. Bizarrely, LongAcre are based in our old office in Covent Garden. They christen the deal "Cruise" - not sure whether this is as in missile or relaxing, sun-drenched, ocean-going holiday.

Leon and Debbie are also in and we all decide to meet for breakfast every Monday morning.

16 April

Heavy meeting about process, strategy and pricing. I'd like to say I am getting familiar with the jargon but, in truth, I'm just faking it. There is much talk of "mezzanine debt, senior debt", "standing in line", "deferred consideration", "heads" and "crossing the rubicon".

Apparently, an MBO is a lot like a divorce; you can't go back a week later and say: "I've changed my mind."

Our timing seems good - Havas is on the point of a major consolidation of its UK agencies. WCRS may not be a central part of those plans and they may be willing to listen to us.

1 May

More jargon, including the marvellous "Nuclear One" and "Nuclear Two".

Nuclear One is when a management team attempts an MBO. Nuclear Two is when the parent company turns them down and they all walk out.

The plan is for Stephen to negotiate with Ed Eskandarian in Boston. Ed runs Arnold Worldwide Partners, the division of Havas where we sit. The visit is pretty pivotal, some parent companies become very aggressive and heavy, it's possible Stephen could be dismissed on the spot, followed by the rest of us.

None of us is very keen on the walkout option. It's aggressive and would hurt staff and clients. Also, on a personal note, we're all in long-term relationships with kids and things - we're just at the stage of life where it's not really an option. However, a rubicon is about to be crossed - there is an emotional session at LongAcre's offices, where there is much shaking of hands and manly hugging. When Stephen steps on the plane there will be no turning back, we have to remain absolutely solid as a team.

If there are any cracks, they will be spotted and the deal will fall apart.

7 May

Stephen is back from Boston - to our great relief he did not get fired.

We meet at LongAcre's office on the Sunday night with our advisers. Ed's response to Stephen was considered and wise. His reaction: "I'd really rather you didn't try to go through with this but I will put your proposals to the Havas board. In the meantime, make sure that day-to-day business doesn't suffer - and don't be distracted by all the froth and excitement." This is probably the best we could have hoped for.


Financing, price and equity meetings. We want to do the deal with a vanilla loan - a lot like a repayment mortgage, where you make interest payments regularly and capital repayments when you can. We also have to establish how much we can all raise - it makes a huge difference to the banks to see a high level of investment from the founding partners and a significant sacrifice. Now we are really getting down to the nitty-gritty.

How do you value a business like WCRS. Do we do it on the basis of the past 12 months' profits? Or an average of the past three years? Or do we agree a floor and a ceiling based on future performance? Thank goodness Peter is involved. I don't know where we would be without him.

The equity split. Well, this is fun. Everybody - me included - is saying: "It's not about the money but we have to talk about equity." Bollocks - of course it's about the money. We are all sinking a big chunk of cash into the deal and want to see a decent return.

The first proposal is based on seniority and salary, putting me last.

I feel very strongly that it should be dependent on what we'll all be doing in the future rather than what we may have done in the past. This highly moral position may have something to do with me being the second-youngest in the team.

After four or five meetings, we agree on the simplest solution - our share is split equally six ways, with Peter as the sixth partner. Significant equity is reserved for other members of the agency.

Our building has six floors and on the way home I think: "On a six-way split, one of those floors is mine." Of course, that's rubbish but it is still an exciting thought. The truth is that I've got a taste for this deal now. I really want the MBO to happen. We agree a price of £20 million with Havas. We have to find "only" 75 per cent of the purchase price as Havas has agreed to keep a 25 per cent stake. This arrangement is a win-win for both of us. We get our independence, they keep a London office for the AWP network. We will work with AWP on Danone's Volvic brand and with Toshiba, and Glaxo's Niquitin arrives the following February.

By the time I factor in a cut in salary, the absence of a long-term incentive plan, a lower pension and having to forgo future salary rises, I'm looking at reducing my income by about 50 per cent.

We've lived in the same house in Blackheath for ten years and had a relatively small mortgage. Not any more. To raise my share of the money, we now have a massive mortgage but structured so my incomings and outgoings match.

I'll be about 105 before I pay it off.


Disaster. Bloody Campaign has splashed our MBO all over the front page.

Where they got the story from I can't imagine. We had agreed absolutely no publicity with Havas.

Stephen, who is on holiday in Cornwall, and I agree we have to call the clients and address the staff. Having been cycling from the Isle of Wight ferry to join my family on holiday, I have to turn round and start pedalling hard. I end up calling Val Gooding, the chief executive of our client Bupa, from mid-Solent.

Some of the staff are a bit shocked. Although many of them don't feel a strong connection to Havas, this is nevertheless a shake-up. Clients, however, are very positive. They know an MBO means they'll get the full attention of the top management and account servicing the likes of which they won't have seen before. There is another plus, too. If any clients are going to go because of the MBO, it's better for us to know now.

Debbie, Leon and I should continue to focus on clients and run the business, while Stephen, Robin and Peter handle the banks. Presentation is what we do for a living but not normally with numbers.

At this point we need to be super-confident about our business and prospects but we're suffering from self-doubt. Apart from a Heinz project and the Department of Trade and Industry minimum wage campaign, we haven't won any significant business this year.

It's not that we haven't been pitching, just that our conversion rate has fallen through the floor.

Lots of mutterings about management focusing on the MBO at the expense of the day-to-day. Truth is we pitched for too many projects at once and did not do justice to any of them. We can't provide the certainty the banks like. These days, a lot of our income is performance related. Yet we can't tell the banks: "They've paid us a bonus every year so far." They won't lend on bonus income. It's understandable but frustrating.

At least the 118 runners are doing the business and we'll get a good bonus for that.

7 November

So we are six months into the MBO, we've not won a pitch in an age and our biggest client calls a statutory review. We begin to question our sanity. We decide not to repitch for Camelot. We must focus on the MBO and keeping the clients who want to be with us happy, not fighting a rearguard action that would probably be futile. It doesn't reduce our purchase price. The valuation is over the past three years, not the past three months. It means that the new-business target in our figures is even more of a leap of faith. This is also the time when we have to make some redundancies - not a high point for any of us.

December 2003-January 2004

We agree a loan schedule with Barclays. We're last in line in the repayment queue. I realise the difference between being an employee and employer: employees can walk away when they like.

We do another financial remodel and the rest of the management team take up their shares. Twenty-six sign cheques - pretty much the entire management board. The response is brilliant, with people weighing in with as much as they can. But it is going on forever. We were warned it might take six months but it's been nine. I feel more confident. We are winning awards, 118 118 has just been named Campaign of the Year. I feel reassured that what I am buying is worth it.


We are pitching for Phones4U, so there is a lot of travelling up and down to Stoke-on-Trent. On the train, Robin, Leon and I discuss a name change. I'm keen on an alphabetical arrangement - this, of course, has nothing to do with the fact that my name would be first.

Leon and I discuss calling it "New and Improved WCRS". It would be very funny if every time a journalist wrote about us they would be forced to call us that - fat chance. At last we all sign off on the terms. Now we just have to wait for the lawyers to sort a few things out - a bit like the period between exchange and completion when you buy a house, except the mound of paperwork involved has become as big as a house.

1 April

At last. Without a hint of irony, the deal goes through on April Fool's Day. We are over at Osborne Clarke most of the day. The atmosphere is tense, there are last-minute hitches and lots of nervous laughs. I never believed it could be so time-consuming or complex.

I wonder if I have changed. I'm certainly more focused. I now worry about things I never thought about before, like aged debtors. I ask myself all the time: "Are we giving our clients good value?" I want to make sure our people are more professional. And I know that, if you travel after 11 minutes past 10am on a weekday, it's £40 for a return to Stoke.

Julian Hough is now a managing partner of WCRS. A version of this feature originally appeared in Management Today.