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Can TBWA help Lucky Generals deliver on its promise?

At first glance this deal structure looks a smart play by Lucky Generals. The question is, can it deliver on its promise?

For all the fanfare around Lucky Generals’ deal with TBWA, it’s a union bedeviled by how its status as a separate brand within the network agency could resuscitate a TBWA\London that is a fraction of the size it could be.

The agreement, which sees TBWA acquire a 60% in the creative shop, seems unlikely to address that issue – at least for now. Keeping Lucky Generals as a separate brand seems unlikely to have been TBWA’s objective going into discussions but once it became clear Helen Calcraft, Andy Nairn and Danny Brooke-Taylor weren’t prepared to relinquish full control of their business, chief executive Troy Ruhanen went for the next best thing.

Rather than the Adam & Eve and DDB model of an influential, agile agency with strong leadership breathing new life into a once illustrious network, Ruhanen’s gamble is more akin to the CHI and BBH setup of a group taking a majority stake in a respected agency to retain that entrepreneurial spirit, while leveraging its own buying power. So it appears to be more a smart move for Lucky Generals than it does TBWA from the outset.

Calcraft’s comments following the move suggest as much: she highlighted how TBWA understood Lucky Generals’ desire for autonomy, before talking up how the deal would “allow us to preserve our unique culture, build our brand and grow”. Her business now has the global infrastructure of a network behind it, which should open doors to clients that might not otherwise consider a London boutique like Lucky Generals.

Harnessing that network effect could add substantial revenue growth in the coming years, explains Tristan Rice, who manages SI Partners' European M&A advisory practice. “So although the deal is unlikely to have commanded significant value today, if there is an earn-out component to TBWA’s investment, the sale of the majority stake could be worth a material sum over the next few years.

“In addition, the founders will probably have the right to require TBWA to purchase their remaining stake at some point in the future (no one wants to be left holding a minority stake in a company with only one potential buyer) and if they get the timing right, those remaining shares could be worth substantially more than the majority stake.”

But what about Omnicom and TBWA? “Has Lucky Generals really proved itself yet,” asks one industry insider. “CHI and BBH had been around quite a lot longer and were a lump bigger when they did their deals. And quite how TBWA benefits is hard to see – a younger sister that keeps showing you up."

Maybe that’s a situation Ruhanen and the rest of the TBWA Worldwide executive team are happy with for now. A well-respected outfit like Lucky Generals gives the group a more compelling story in London. From its irreverent work with Paddy Power to its high-profile Twitter account, the agency defied the conventional wisdom that independent startups can’t succeed at a time when many marketers want more for less. If Lucky Generals achieved all that before the end of its third full year, then TBWA will no doubt be salivating at the prospect of all the business it could bring moving forward.

As it has done with HEIMAT in Germany, TBWA will likely use Lucky Generals to woo lucrative advertisers that it wouldn’t otherwise get. It’s unlikely that any of its clients would have an issue with those at TBWA, given the separate P&Ls, separate teams and separate buildings. And yet, they won’t be entirely separate under the newly created joint entity, with change already afoot at TBWA\London to try and exploit the proximity to its new sibling.

Richard Stainer and Amelia Torode, who served as the creative shop’s chief executive and chief strategy officer respectively, have left and their replacements will need to assert TBWA's majority ownership while giving some space to Lucky Generals, yet still keeping some of its dazzle in a potentially less vibrant client space.

“But I do think there are substantial risks, too,” muses Andy Maher, one of the three leads at the marketing-and-tech growth advisory Waypoint Partners. “With the ink barely dry on the deal, it’s fair to ask whether the new heads at TBWA will be sufficiently focused on keeping Lucky Generals hot. I do think there’s a real chance that TBWA’s leadership may be distracted – and understandably – by rebuilding their own brand.”

Beyond Lucky Generals' flair is the attraction of Calcraft. Ruhanen has made no secret of his ambition to have a more diverse leadership team and is understood to be a big fan of Calcraft, who besides being among the most connected in the industry is a prominent member of the Women in Advertising and Communications London group.

The question asked by many observers is whether the Lucky Generals founders sold too soon, before the business was big enough to take home a substantial sum on day one. Only time will tell, opines Rice, who brands the deal “relatively risky” at this stage of its lifecycle.

“Presumably, they’ve spent enough time with TBWA to feel confident that the deal is worth the risk,” he continues. “The other thing to bear in mind is hotshops like Lucky Generals don’t stay hot forever. They [the founders] may just think ‘if we’ve only got three more years of being the coolest agency in town then we want to make sure that we absolutely nail the growth over the next few years’ and if being a part of a network means you’re able to grow a little bit faster then you’re making best of your time in the limelight. That’s the period during which the business is going to get valued effectively.”

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