A small deal by WPP early this month offers this column a walk down memory lane. WPP has paid prospectively as much as 8.5m for Addison, the corporate literature design company led by Simon Lake.
As I say, this is a small deal that shouldn’t cause a quiver in WPP’s share price, even in these febrile markets – an initial sum of 5.5m has been paid in cash and loan notes and the further 3m will be paid in five years if Addison performs. Last year, Addison generated turnover of 6.7m and reported an operating profit of about 1m, meaning that the company has been acquired for a post-tax earnings multiple of about ten – not bad, from the sellers’ point of view, for a private company in marketing services, even allowing for the current inflation of equity markets.
But not enough to register on this column’s radar screens were it not for the fact that Addison’s founder and principal shareholder, back in the mists of time, was Steve Smith, who now becomes non-executive chairman of the company.
In the salad days of this column, when it was green in judgement, in April 1989 to be precise, I penned a piece on the break-up of the publicly-quoted Addison Page group. Addison had floated in 1984 and had embarked enthusiastically on a programme of merger mania, which was all the rage at the time. Then, in 1988, it started a process of break-up and, to an extent, a process of haemorrhaging as some of its executives in the PR field decided to do their own thing.
My piece was a pastiche of Old Testament text – full of prophetic forebodings – the thrust of which was that Smith was squandering the value of the group. It was all very Eighties and satirical. How we laughed.
What we should remind ourselves of here is that quite a lot of the Old Testament is complete rubbish. If you don’t believe me, take a look at Ezekiel – I’d like some of what he was on. Now, while I believe the column didn’t quite fall into the Ezekiel category, it is worth saying that the doom-laden predictions I offered for the constituent parts of Addison turned out to be about as accurate as Old Testament prophecies that reckoned the world was about to end in a cataclysmic visitation of heavenly marmalade, or whatever.
The record shows that constituent parts of the old publicly-listed Addison have done rather well. Recruitment group Michael Page earlier this year announced a 72 per cent rise in pre-tax profits on sales up by 40 per cent and, more importantly, sold out to US-quoted Group Interim Services for some 350m. Taylor Nelson AGB, meanwhile, floated as Britain’s largest market research group and is currently valued at some 125m.
When Addison Page started its break-up process in 1988, the total group was probably worth about 80m. Less than a decade of relatively low inflation later, the old constituent parts – including the modest contribution made by the sale of Addison to WPP – are worth about 500m.
Which could suggest that the constituent parts should not have been unbundled in 1988, except for the fact that the original shareholders have largely stayed with their investments.
Apart from observing that Smith and his colleagues have become extremely wealthy, there are a few other points worth making.
The first is that what was Addison Page clearly realised the value of unbundling a group, long before the demerger principle became fashionable during the Nineties among industrial concerns from Hanson to Thorn-EMI. Individual corporate brands, it was reckoned, could deliver greater shareholder value than the conglomerate in marketing services. Amen to that.
The second is that Smith and his colleagues turned the Eighties, in the marketing services industry, into a positive experience. The decade is littered with the corpses – and walking wounded – who found the experience of booming and busting markets altogether less amenable – the names of Fitch, Michael Peters and Charles Barker spring to mind.
The third is about WPP. This conglomerate has always been rather keen on preserving the integrity of individual corporate brands – witness JWT and Ogilvy & Mather. Doubtless it will continue to protect the corporate identity of niche players such as Addison. I hope so, otherwise the value so assiduously developed by Addison could be squandered. I would add that I anticipate a developing programme of acquisitions by WPP as, now well out of its difficulties, it explores non-organic means of enhancing its earnings.
The fourth is that Smith is nothing if not tenacious. He has come through the boom and bust of the Eighties not only intact but very well remunerated (as have his shareholders). In this, he is not unlike WPP’s Martin Sorrell. Both were written off in some quarters in the late Eighties – an attitude that looks rather silly now.
The fifth is that you should be wary of false prophets – particularly Mammonites. What a difference a decade makes. I got the Addison story wrong and I’m happy, after all this time, to tell it as it is.