STRETCH MARKS SHOW

Hit by the ‘double whammy’ of over-dealing allegations and the threat of a major shareholder defection, the CIA Group seems to be under siege. Critics pan its expansion strategy, saying its resources are severely stretched. But profits are ro

Chris Ingram joined 200 CIA managers last week in Sussex for a team-building day where calculators and power lunches gave place to crawling under nets and sliding down muddy ropes.

The games, hurdles and obstacles fell short of full military training, but it was an apt end to a week of bullet- dodging from the press. Not only was Ingram’s agency alleged to be at the

centre of an over-dealing row with ITV, its group vice-chairman Marco Benatti had threatened to sell his 14.6

per cent stake in CIA (MW September 6).

Ingram appears to be in tactical retreat. Next week the media planing and buying giant is regrouping its top management, or in CIA speak, “reviewing and strength-ening its structure following a

period of substantial and successful expansion”.

While the over-dealing issue has sparked furious debate in the media industry, the City has been more

circumspect.

Panmure Gordon media analyst Lorna Tilbian says CIA’s share price is “rock solid” despite negative reports, largely because of its runaway profits success. The group has continued its succession of increased yearly profits – with pre-tax profits rising by 25 per cent to 6.7m in 1995. And for the six months to June 30, pre-tax profits were up 103 per cent to 3.4m on turnover

which rose 36 per cent to 379m.

When CIA floated in 1989,

an objective was to become one of the sixth largest media buyers in

the UK.

Now there are higher goals. “Well, we’ve done that (in the UK), our target now is to be one of the top six media buyers in the world within five years,” says the 52-year-old who started Chris Ingram Associates 20 years ago next month.

“Though ranked number two independent (TMD Carat is number one) in Europe, CIA still requires in-fill acquisitions to complete its network and has flagged the fast-growing Eastern European and Scandinavian markets for future expansion,” says Tilbian.

Unlike rivals who buy whole international networks to assist expansion, CIA has pursued a gradualist expansion strategy, purchasing agencies in individual markets. It has often started as a loose affiliate or joint venture partner at first and then snapped them up.

Piecemeal growth such as this, though at first sight prudent, can create its own problems. “If you buy up a network most of the local difficulties have been sorted out at the centre. When you buy local agencies, with local power bases, the problems are multiplied,” says a source close to Ingram.

Some feel the drive for expansion has taken CIA’s eye off its core UK market. In the past few years the UK operation has floundered, claims one top agency managing director – while complimenting it on the strength of its European network. “They’ve had to raid the war chest to keep the company afloat,” he says.

Several who have left the group recently comment that too much attention is being paid to international development – especially in the Far East.

In November 1993, CIA Pacific was set up in Hong Kong and in January this year the penetration of the Asian markets was assisted by a joint venture operation between CIA Medianetwork Singapore and

Batey Ads.

After CIA floated, it launched into a number of joint ventures, not only in the UK with full-service agencies such as Collett Dicken-

son Pearce, but overseas. Benatti’s

Medianetwork being one of those ventures.

Ingram denies the UK operation is flagging behind the rest of the group. “It was only a 32 per cent rise, but the UK company is still producing just over half the profits – it’s the most profitable part of the group.

“The businesses that we are supporting in the group are the Far East and France – everybody else is profitable and the small ones are at break even,” he says.

Tilbian says the agency’s billings have continued to be driven by CIA’s three core markets: the UK which has grown by 32 per cent in the six months to June; Germany, which has soared 90 per cent; and Italy, which has grown 75 per cent.

CIA purchased the Italian Media-network in June 1993 along with its parent Blufin and part of the holding company Blugroup.

When it was bought, Blufin was paid more than 1m in cash and given 400,000 ordinary shares which were to be retained until at least December 31, 1995.

Benatti as chairman of Blufin now holds directly or indirectly 14.6 per cent of CIA Medianetwork or 6 million shares – shares he has either purchased in the market or gained from earn-outs.

There are 41 million shares in issue – giving CIA a market capitalisation of about 70m. He is the second largest director shareholder after Ingram himself, who owns 12.3 million shares – valued at more than 20m.

Benatti’s two-year period of commitment expired at the end of last year, and he is now free to sell his shares. “Some shareholders would like to see it (the share holding) reduced, maybe for tax reasons,” says Ingram.

Benatti joined the CIA board in 1994 when the group bought his Medianetwork to increase its presence in Italy. He is currently chairman of CIA Medianetwork Italia.

Benatti, 42, is believed to have had early talks with Interpublic network after falling out with Ingram over the strategic future of CIA. He claims the restructure has given rise to “inevitable differences of opinion”, but adds: “I remain firmly committed to the group and the continuing success of the Italian company.”

Ingram says Benatti has not sold his shares. “But anybody who has sold their business to a public company and sold the business for shares, reserves the right to reduce their share holding,” he says.

Tilbian predicts that if Benatti were to sell his shares to Interpublic the share price could go up.

She says the buy-up could be encouraged by the fact that CIA recently won the 23m centralised Lloyds TSB media account from Lowe Howard-Spink, which is wholly owned by Interpublic.

“(Interpublic) was pipped at the post and after losing that piece of business might look to get it back and buy into the company,” says Tilbian.

Ingram denies the company is in sale negotiations with Interpublic. However, he admits he regularly talks to “a number of different people about joint ventures”.

According to sources at Interpublic, buying CIA would help to solve the long-standing problem of lack of media-buying clout for its agency networks, Lowe Group and McCann-Erickson. Interpublic is known to be desperate to resolve the situation. “If Lowe Howard-Spink lost one major client, the effect on its ability to gain discounts would be huge,” says one source.

Being bought, or at least bought into, by a well-renowned network could offer CIA a few dividends as well. It might take some of the heat from the company’s management style.

Many of Ingram’s critics believe that his determination to buy up companies and pay for them primarily in CIA shares has contributed to current problems.

The turmoil, according to ex-employees, stemmed from the “mass exodus” after the 1989 floatation.

“Staff who left then have never really been replaced and the problems they are experiencing now are because of it,” says one ex-employee who prefers to remain anonymous.

Nick Manning and Colin Gottlieb left the company in 1990 to set up their own media company – later joining forces with CIA’s rival, Carat.

Barry Croucher, head of television left in March 1993, after 15 years in the job and was replaced by account director Josh Dovey who left the TV-buying director job earlier this year (MW January 12).

In the same year that Croucher resigned, John Terris, CIA’s vice-chairman left to go to the United States.

“Broadcast was strong, Croucher was really the man with an iron fist – now its management on the broadcast side is relatively weak and I think this has been the cause of this trouble,” says one ex-staffer who left in the early Nineties. “One expression I’ve heard is that they have boys doing men’s jobs.”

CIA has been hunting a replacement for Dovey for nine months – the position would be deputy managing director with a brief to oversee the broadcast sector.

The fact that CIA has talked with Zenith’s joint managing director Graham Duff about a position at the company hasn’t helped.

The move has fuelled speculation over managing director Mike Tunnicliffe’s role. Duff, however, denies he is moving to CIA.

Ingram will be hoping that his successful recruitment last year of David Reich – media industry doyen, friend and sometime colleague – will add more gravitas to the management line-up. But Reich is only a non-executive director.

As negotiations with TV companies have already started for next year, bringing in someone to “clean up” broadcast is crucial for CIA.

The staff exodus following the flotation has been blamed on the lack of financial reward given to management who helped build the company before its flotation.

It is these problems, and rapid expansion in a relatively short time, which have contributed to the UK’s performance and laid the ground for allegations of overdealing.

Ingram admits there are problems with ITV contractors. “Yes we are having strong debates with television contractors,” he says.

However, he is adamant that it will be sorted out and that the legal action threatened by Laser or TSMS will not materialise.

Some feel that Ingram is being unfairly singled out for a practice which is widespread among large- scale buying points.

Meanwhile, back at the battle- front, Ingram was in a belligerent mood about recent press coverage, claiming that there are dark forces at work. “We’ve won big bits of business – we’re not the most popular guys on the street at the moment,” he says, “There are those who have pleasure in watching you fall off your perch.”

From now on, Ingram will have to be careful to ensure that skirmishes with the sales houses and the “enemies within” don’t erupt into open warfare.

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Tom Fishburne is founder of Marketoon Studios. Follow his work at marketoonist.com or on Twitter @tomfishburne See more of the Marketoonist here

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