Rules of engagement
Brian Rees started out in the industry as a brand manager at what was then Allied Breweries. In 1984, he launched PDP, a specialist sales promotion agency which grew from its Manchester base to open an office in edinburgh. In 1999, he was approached to sell the company, which he did, and PDP became IPG’s Momentum. Following a two-year restrictive covenant, he left the agency in 2003 and launched the IF Agency at the beginning of 2006.?
Brian Rees is clear that his decision to launch an agency stemmed from his experience client-side. “I’d clocked that there were a lot of provincial agencies that pretended to do everything – advertising, PR, anything for money,” he says. “I was using a lot of sales promotion agencies in London and paying them an absolute premium. When PDP started, we decided that rather than being one of the morphing agencies that will do anything – from car valeting to design to whatever – we’d put a sign out of the door which said ‘sales promotion’.
“I have to say that we thought we were going to get Kellogg’s and all these companies in and around Manchester. Sadly, we were wrong. They quite liked using London agencies – they liked lunch and Langan’s and the trip down there. I’m a great believer that wherever you’re based it doesn’t really matter with today’s technology, but in those days you had to get on a train or drive down. We targeted all of the big blue chip companies in London and they thought it was quite interesting that these Manchester upstarts were selling sales promotion. But what they didn’t get was that we were a lot cheaper than many of our London counterparts.
“I’m not suggesting that’s a very good way to start a business, but it was our way. We had quite an interesting formula where we came up with an equity model whereby we put a business in a regional office in London. We very carefully found the right people, who were, as we described them, ‘suits’. There was no creative and no production.
“Even before the technology that we have today, we’d pipe everything we had to our factory in Stockport, but the guys in London had the PDP brand, for what it was worth. They had equitable motivation to be part of that growth and they had a lot of cheap work coming down the motorway.
“So we decided to replicate that franchise and we opened in Edinburgh, which was a lot tougher. The Scottish market was saturated, and I had a real problem in trying to get a margin out of being in Scotland. But we opened in Edinburgh and we opened in Bristol and by the time we were talking to Brian [Child], we were looking at opening up in Birmingham.”
Rees believes franchising the business enabled PDP to build a network. “While Brian and I used to compete in Manchester, we had a great network. Looking back, I wondered, ‘We’re now turning over £11million or £12m and we’re making a couple of million profit here, so this must have some value.’
“Every time we made any money, we would reinvest in new technology, invest in our infrastructure, buy our own properties, and invest in the people who worked with us. Crucially, I thought, ‘This is going to be something that somebody wants to buy.’”
Sure enough the phone started to ring, and Rees was fending off calls from Child, WPP and Publicis. “I had to make some very difficult decisions,” Rees admits. Firstly, he had to decide how the company could sell up. And then he had to think how the staff would react.
“The first thing I had to do was think about how I would respond if my boss turned round and said, ‘I’m thinking of selling the agency.’ I wasn’t convinced that my management – although they were great people – could afford what I thought we were worth. And I certainly couldn’t see them presenting to HSBC or whatever and generating the money. You’ve got to think very carefully about that. So I wondered, ‘How am I going to keep these people?’ One of the tricks that we came up with was a share option scheme.”
Rees brokered a ‘phantom share’ scheme, which gave the agency a golden handcuffs deal on around 20 people. Every six months, staff involved got a note telling them what their part of the company was worth. But as their ‘phantom’ shares began to appear to be worth more, Rees sat the staff down to explain that “the only way that we are ever going to cash in our chips is if we get sold”. He then told them: “I’m in the process of talking to companies.”
Choosing which company to go with was tricky. “There was one particular equity company which came our way that was offering all sorts of inducements, but I couldn’t see how that would work for us as they were a profit company. They were going to buy us and then probably sell us on. I didn’t think that was going to be healthy for us and it certainly wasn’t going to be healthy for the staff.”
After assessing the opportunities, Rees convinced the PDP team to go with the McCann Erickson offer, something he would yet come to regret. “What I failed to understand was how the culture was going to change. On the plus side, we became part of a multinational company – we became part of Momentum. Instead of working around the Home Counties, we were working all around Europe. We were working in the Middle East, and we had some fantastic assignments for Stella, Nestlé, Unilever and Coca-Cola. However, two-thirds of the staff didn’t enjoy the cultural change. And I have to admit, neither did I.”
The shift from working for themselves to suddenly being answerable to a major network was untenable. “Before we were driving our little coach and we had all of our friends singing in the back, deciding where we wanted to go. Then, all of a sudden, you have these American accounting wankers ringing you up every week, wanting updates, wanting to know why you’re not hitting a certain rate.
“They value you on the strength of future profits and they could indicate that by looking at your previous profits. The most creative thing I ever did with Brian was the forecasting. If you don’t hit your numbers in your own business, it can get pretty bad. But you’re not going to have a phone call at eight o’clock at night from some calculator telling you that you’ve got to reduce your ratios and you’ve got to reduce your costs. What’s that going to be? It’s going to be people.
“I lost some very good friends. And they didn’t just leave – they left with business. I lost the confidence of some of my partners and fellow directors who did not buy the dream at all. They were Stockport men through and through – very parochial and very provincial, and they saw me on the side of the Americans.”
Rees admits, financially, the deal was fantastic for him and some colleagues. “But the heart and soul of the agency was destroyed. Have McCann’s got what they wanted out of it? I’m not quite sure. Have we got what we wanted out of it? Financially yes, culturally no.”
One of Rees’ key warnings is thinking about succession management. “I suddenly realised I was sitting in front of a 25-year-old brand manager selling the same shit. I’m 39 and this kid’s got a budget less than my salary and there’s nine of us pitching to have the ‘privilege’ of making this guy look good. That’s why I think the succession of key management is important as I got quite bored with that.
“I thought to myself, “I’m of a certain age. How long can I keep doing this?’
“One of the interesting things in the selling process was that there was a lot of stuff that we thought we were doing brilliantly, but when you become part of a group you realise you’re not doing very well at all. We used to run loads of ideas and boards with no thinking. Clients would sit in, and most of them were geeks, and they loved the boards and they loved all the stuff like that, but the way they sell that to their bosses, the financial director, is the thinking.
“The ideas are the nice bit, and one of the things I learned – and we improved – was the strategic set up for ideas.”
Brian Child – former chief executive of McCann Erickson, now CEO of Mission Group, an ambitious network builder of agencies – and
Rees, former managing director of sales promotion agency PDP, both went through the process when Child was involved in buying
Rees’ agency PDP in 1989, while at McCann Erickson. Here Child explains his thoughtswhile the deal was being brokered.
Brian Child’s feelings on buy-outs and mergers were formed by his experience at Royds, where he was part of a failed MBO for the then direct marketing king of the North. The MBO failed, and in 1986, McCann Erickson bought the agency.
“When the management buy-out failed, a number of people who thought they were going to be multi-millionaires suddenly discovered they weren’t and were instead going to work for an American corporation,” says Child. “A number of them paled at this thought, and – as happens in the advertising business – within a very short period of time, the agency started to collapse. I inherited a situation where we were haemorrhaging staff and clients – it wasn’t a happy situation to find yourself in.
“One thing working for big international companies is that you begin to realise the importance of budgets and bottom lines. We were contracted to pay back 15 per cent per annum, which meant doubling in size every five years – and that’s a pretty tough thing.”
The task wasn’t too tough though, and the agency found itself growing to employ more than 300 people. “At about 50 people you start losing track of who’s working for you,” Child says. “At that time we were feeling quite pleased with ourselves. We actually weren’t getting any support from the trans-worldwide system at all.
“But then we were invited to one of their five-yearly global conferences where they lay out the future of the company. Our goal was to double in size in the next five years – which they had done for the previous ten years.” That ambition was slightly dizzier for the Interpublic Group. The network had discovered it was the world’s advertising agency and it had a belief that it was almost too big to be able to double the size of the business.
“At that time it had more offices and more global clients than any other agency in the world,” says Child. “So they developed a strategy – or as they called them ‘corridors’ – and said that as well as being the number-one advertising agency in the world, they were also going to be the top PR company in the world, the number-one direct marketing company, the number-one communication company and the number-one e-commerce company in the world.”
To McCann Erickson Manchester, Child had the perfect shortcut to doubling the size of the company. Each of the group’s agencies were given access to their knowledge base and told to ‘go do this’ in terms of acquisition. Child had been aware of PDP, a fledgling sales promotion agency, for the previous two or three years.
“There was a general amount of activity out of there that I became interested in. I did a bit of digging and saw that they were making millions of pounds of profit. That was interesting to me because I was in a situation in Manchester where our profits and accounts were more than the 19 other advertising companies below us put together.”
So Child called Rees. IPG’s head office in New York sent over an executive to accompany Child to see Rees, but the initial meeting was not the positive one both Brians had been expecting. “This guy proceeded to tell both of us why PDP is not strategically sound and wasn’t the sort of company that McCann’s really wanted to be doing business with,” says Child. “Brian then asked, ‘Would it help if we went out and got Coca-Cola?’”
So, without fail, he went out and won some Coca-Cola work, just to prove the point. “It turned out this was deemed ‘not doable’ by the top bods at IPG, which prided itself on being the number-one marketing company; the number-one healthcare agency in Europe. Brian’s company at the time was primarily sales promotion – in reality it was a bit higher than sales promotion, but that was the category you would put it in. And McCann’s had this idea of experiential marketing, that they wanted to be world leader in it. I was given a new brief to grow Momentum in Europe, so I phoned Brian again. I could now talk to them and involve people from America and we had the opportunity to do a deal.”
But what was it that made PDP attractive to McCann Erickson in the first place? “Primarily their financial position,” says Child. “There aren’t many companies outside of London that actually deliver the track record of bottom-line performance, year on year, that PDP was delivering.
“In those days, if you signed a deal on 30 December, you could take the whole of a year’s trading with that company into your company’s P&L account that year.”
Child believes that buying another company is one of the hardest tasks for a manager. “You’re paying a premium for what was a historic performance,” he says. “It’s a bit like when you buy a footballer – you are actually buying what he did somewhere else. What he does at your club… it’s a high-risk business – how do you take the risk out of it?
“They say that selling your house and having children are the two most stressful times. Don’t you believe it. Selling your company is far more stressful than that.”