GGT arrives at the crossroads

In the risky, image-driven world of advertising, headlines are an important ingredient of success. So Mike Greenlees, chief executive of GGT, will have been very pleased to read in the Financial Times last week: “GGT set to treble in size after 105m French deal.”

The headline implied, rightly, that GGT is finally in reach of the big time. This is the defining deal, which eluded him nearly three years ago with Y&R; it gives GGT a crack at serious international clients – like P&G. And not before time. There’s no virtue in playing piggy in the middle these days, especially when you are a listed agency whose institutional shareholders want results, fast.

But sometimes the small print is just as important as the headlines. In this case, its absence may be cause for concern. The deal shows signs of being hastily concluded. Why suspend dealing in GGT shares until January, unless there remains serious work to be done on ‘merging’ the two companies?

For a start, GGT’s accountants will be need to check with a fine tooth-comb any liabilities hidden in BDDP’s byzantine corporate structure. The upfront purchase figure of 105m sounds very reasonable (BDDP’s revenues were about 142m last year). But there is a suspicion of company debt and cash earnouts lurking in the woodwork. On one reckoning, this could push up obligations to 160m, though over a number of years.

Then there are the many minority interests. Particularly riveting are emerging details of the relationship between BST.BDDP, on the one hand, and Financial Dynamics, on the other, with the French parent company. Both of these profitable subsidiaries appear to have negotiated highly favourable terms in the event of takeover.

But the heart of BDDP is the French network and Wells Rich Greene in the US, which between them account for about 75 per cent of the group’s 1.3bn billings. These will, to say the least, require strong management by GGT. The French agency is key to profitability; two of its founders now sit on the GGT board as executive directors. French shareholders will hold 24 per cent of GGT. A significant proportion of that 24 per cent is owned by one man, Walter Butler, who will also sit on the GGT board. The French must be grateful their group has not been broken up by the likes of WPP Group or Grey. But what is gratitude?

The Americans will require careful handling, too: Frank Assumma and his team hold the key to the group’s valuable P&G business and are likely to defend their territory vigorously.

GGT’s task will be to reknit this tangled skein into a properly integrated international network. At the moment, Danone seems the only core international client. There are great opportunities here for GGT, but also great risks.

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