Why selling your agency is a matter of timing and an emotional wrench - Phil Jones talks acquisitions

It’s been an interesting few months with the large groups snapping up digital agencies. It’s not over yet either as several other agencies are currently in discussions and weighing up the for’s and against’s of letting go of their prized possessions. It’s probably worth taking a breath and thinking about how some of these deals come about, when is the right time to sell and what happens to ensure success after the deal is signed.

Until you have sold a business it is very hard to appreciate just how emotionally attached you become to it and to all the staff you bring on around you when building it from scratch. I was 28 when I teamed up with two mates to start my own business and at the time (1979 for my sins) the banks would only loan money to businesses who were prepared to put their houses as collateral for the loans. Even our wives had to sign to say they agreed everything was at risk and it was our first house so it was an emotional time and the biggest decision we have ever made. The mortgage rate at the time was 17%, borrowing for a mortgage and a business was a scary affair. To make matters worse Margaret Thatcher became prime minister and things got a whole lot scarier.

I will come back to the catalyst for selling my business later but very often it’s simply about getting the timing right and a few weeks can make a huge difference when many of the factors lie outside of your control. I remember being at an awards event many years ago chatting with Gary Lockton who was one of the owners of Deepend. He told me they had three offers on the table from three rival agency networks and they were being careful to make sure they jumped into bed with the right partner. I remember being really pleased for them and wishing him good luck. Then the dotcom boom/bust happened and all the offers were taken off the table and the real world hit home with a vengeance and they ended up losing everything.

Some of those early pioneers in digital had awesome reputations at the time and AMX were one of those that were on everyone’s shopping list with Al Scott and Malcolm Garrett winning awards, doing groundbreaking work and hoping for a payday somewhere down the line for all the effort they had put in. And then they too ran into financial problems and were paddling under the water much faster than most people realized and eventually they ran out of time and money and I remember getting a call over a weekend asking for help. The outcome was that my company (Real Time Studio) helped take AMX into the Havas fold and they survived to fight another day but it was the end of the dream of having something to sell for all those early pioneering years. If they had made the decision to sell a year earlier they would have been one year into an earn-out that would probably have seen them all doing really well. Bad timing, bad luck!!

DNA were another digital agency punching above their weight around that time and Chris and Neil survived and sold their agency to Razorfish and went through a successful earn out and lived to fight another day and are young enough to reap the benefits of starting another new business (good luck lads).

Says Chris Perry, now CEO of Fabric; “Selling DNA was emotional, from the way we had to say goodbye to the name, to the change in the relationship between ourselves, our business and the team we built. That said running digital businesses is all about wanting to find new ways to do things. Learning is something you have to do everyday. We sold the business because we were ready to learn more from other people. Other people we really liked and respected. Razorfish and subsequently Microsoft transaction. taught us a massive amount. Things we'd never thought about in the UK, and things we'd never experienced. We were really lucky because the learning and the journey, easily outweighed the nostalgic connection we had with the business we used to be. Incidently we didn't know this before we sold, and we spent a hell of a long time worrying about it during the transaction.”

From 1991 I became MD of Real Time Studio and in 1996 I remember having a stand at Multimedia ’96 at The Business Design Centre and all my staff were wearing international football shirts to coincide with Euro 96. The Times actually did a feature on the event and showed a great picture of my team in its interactive section. My partner in crime Trevor Chambers was interviewed by CNN and it all felt very grown up. There were not so many competitors back then and I remember us winning the design & build of the website for Canon UK, hard to believe that Canon had no website before that, it doesn’t feel that long ago. We picked up the online for Diesel shortly afterwards and it all started to snowball for the next few years and in 2000 we merged 100 strong Real Time with Evans Hunt Scott to become 250 strong ehsrealtime (later to become EHS Brann and now Euro 4D something or other). Our merger with EHS was the first between a top five DM agency and a digital agency and the focus from that point on was very much about integration with our first project being the on and offline launch of the New Mini followed by the launch of England Fans for the Football Association.

The merger also threw up some of the problems that agencies will face when integrating digital agencies and I lost a few brilliant people who didn’t feel as valued in the larger organization as they had when reporting into me. One particular individual was one of my stars Peter Pedersen, he had a quiet way about him and always made my clients feel assured and the directors of Real Time respected him for what he was. When he started to present alongside much more confident advertising agency folk they expected different things from him and had less respect for his obvious talents and he chose not to stay in the new entity. The fact he moved to become head of interactive at Channel 4 for a £40k salary hike proved his worth but sometimes it’s difficult for individuals to shine in the larger agencies. The MD of the merged agency had a different management style and many good people left despite the huge opportunities the merger brought with it to work on major brands.

Martin Talks of Draft fcb sold his business, Blue Barracuda in 2011 and is a year into his earn out, he emphasises the contradictions faced by buyers and sellers: “Most entrepreneurs found an agency to run something themselves, but then hand it over for someone else to run. They then enter a sales process to make maximum returns, but then reduce the returns by being distracted by the sales process. And from a buyers perspective, they buy an agency to strengthen the agency capability, but then often prevent the strengthening of the agency by having an earn-out that ring-fences the selling agency. Balancing the contradictions is the key to successful sales and acquisitions – but getting that balance right can be tough. I spent a few weeks in 2011 sleeping on the agency sofa and sleep walking to meetings.”

Part two: What agencies today can learn from the digital deals of the past