In the second part of his series about agency acquisitions, digital veteran and long-time DADI Awards chairman Phil Jones reminisces about the agency scene of the mid-nineties through to the naughties and hears the thoughts of former comrades Felix Velarde and Kate Howe.
Thinking back to who were my competitors in those years there was a real camaraderie between us all (as we were all making up the rules as we went along) and quite a few of them went on to sell their businesses and some resisted the temptation and stayed independent throughout. Underwired were founded in 1996 and founder Felix Velarde has been through more than one earnout in his time in digital. I asked Felix for his thoughts on the subject of selling an agency.
“I've sold two agencies and earn outs aren't very useful. The structure seems designed against collaboration (because if there's budget to be had you don't want to share it, as that reduces your profit and that reduces your earn out) and the sudden introduction to having a boss needs to be managed carefully. Entrepreneurs tend to be independent by nature, so in an ideal world the owner needs to sort out succession sharpish when they do the deal. Most earn outs by the way get you a house and a fancy car or two, but won't put a million in cash in the bank - to grow to the size you need to sell for zillions you need to dilute at least once, possibly more often. Or go into the tech industry for a thousand to one shot of making it.
"Another thing I've noticed is that the sort of people who are capable of building a successful agency tend not to want to stop. My own naive dreams in the '90s about spending the rest of my life on a Bajan beach appear to have gone by the board. Eighteen years, three sales and two earn outs later - and still my wife wants me out from under her feet, so I bought my current agency back from the previous buyers in April and have started again. In turn that means you've got to be nice to everyone along the way!”
When I hung up my boots in Jan 2004 I took six months off to recharge batteries and watch Euro 2004 in Portugal and from July onwards took up roles with creative businesses as a mentor/advisor to help them. It’s a very different experience spending a day a month with an agency and giving advice compared to working 60+ hours a week full on being responsible for one company. It has certainly given me a lot more sympathy for the day to day problems that most owners of businesses face and the dilemma’s they have to deal with. Interestingly of the three businesses I joined in July 2004 two of them sold their businesses successfully and the third stayed independent and ran into financial problems in the recession and went into administration. Two of them got their timing spot on and the third got it all wrong, the type of crash that put paid to Deepend’s plans put paid to the fortunes of many agencies in this last year or so when the banks just failed to support them through tricky trading conditions.
One of the companies I was advising was a digital agency called Mook who I helped introduce to potential buyers including the one that bought them, Nitro Group. That was a really interesting learning experience for me as I saw Mook go from five founding partners in 2004 to three by 2006 and in my opinion had they not capitalized on the opportunity of selling its very likely the partners would have gone their separate ways without ever having the pleasure of an earn-out. The earnout was very successful for the partners, they tripled the size of their business during the earnout period and are now all in very senior roles in different agencies having earned a decent payout and picked up new management skills that have stood them in good stead for the rest of their lives. The CEO of Nitro Group at the time was Kate Howe and I asked her about the integration of a small cool digital agency into an ATL global agency environment.
Kate Howe, regional president, Draftfcb Europe: “Having been involved in integrating Mook into Nitro and more recently Blue Barracuda into Draftfcb my key learning is you really have to understand the strengths of each agency so that once merged they are greater than the sum of their parts. You need to preserve the best aspects of the agency you acquired or you lose what made it attractive in the first place. Equally there are aspects of the acquiring agency that made the acquired agency want to sell to you so it’s not all about one or the other but matching up the best of each of them. The reality is it isn’t easy. You have to actively manage it or it won’t work.”
I have been organising a get together of owners of design agencies for 18 years now and for digital agencies for ten years, www.digitalpodge.co.uk and every year I have a lot of fun putting the guest list together and its amazing how many companies change name and how many senior individuals change jobs during that period. If I look back to the guest list at the earliest digital podge lunches many of those agencies no longer exist. Moonfish, Mook, Digit, Lateral, Wheel, Souk, Bluhalo, Random Media, Oyster, Recollective, Good Technology, Zinc, Navyblue, Pavilion, Raw Nerve, Graphico, the list is endless. Amongst them are some great success stories and a few very sad stories tucked away in there. But change is imperative and making the most of the opportunies that come along always comes down to being decisive and getting the timing right.
Over the last few years I have been lucky enough to be appointed by a few large agencies to help them identify digital agencies they can invest in, acquire or simply work with and sitting in on lots of the meetings with acquiring agencies and those hoping to be acquired is a real eye opener. I think it’s quite difficult for an agency to talk about its business in a dispassionate way and sometimes they are not always realistic about distinguishing what genuinely adds value and the day to day stuff that should be expected of any agency. Most of them have real nuggets that make them very special but not everyone is as eloquent at explaining what they are and therefore maximizing the value of the business they are selling. I think both Ajaz at AKQA and Justin at Fortune Cookie are both talented and Eloquent and potential buyers could not fail to be impressed by them and the vision they have for their respective businesses.
Part three of Phil's blog will run tomorrow on The Drum Online.
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