Managers at agency WCRS are about to take a huge gamble. Two dozen executives are staging a management buyout of the company from holding group Havas, just as the agency has been going through one of its periodic fallow patches in winning and retaining business.
The managers will be putting some of their own cash into the buyout, with further funds believed to be coming from original founder Peter Scott, who it is understood will have a role in the new structure. Additional financial backing comes from media venture capitalists Long Acre. Havas and WCRS were unavailable for comment.
The deal is reported to be worth up to &£20m, though some are sceptical of such a high figure, as this could represent eight times the agency’s annual profits. Becoming owners will surely instil a greater sense of passion into the work of the managers and will help to re-energise the agency run by co-founder Robin Wight and chief executive Stephen Woodford.
“In reality, when it is your own money it is a stimulus to working even harder,” says one observer. “If you give people a chance of exceptional rewards, it is surprising the performance you can get.”
WCRS insiders believe the agency is starting to make a comeback after losing large contracts, such as Camelot, last year and its failure to convert pitches for major accounts into wins. This year it has already won business for GlaxoSmithKline, Phones 4U and 3 UK.
The managers evidently believe a buyout would add fuel to the fire. Perhaps the year-long preparations for the buyout have diverted attention from the core job of running an agency. Once the buyout is completed, WCRS may be able to fire on all cylinders again.
The plan to decouple itself from its network comes as the UK’s medium-sized advertising agencies are beginning to take an intellectual and commercial highground with clients. They claim to benefit from being neither hide-bound network agencies nor tiny creative boutiques. “Mother beating the WPP Group to the Boots account demonstrates the point. If a multinational can’t win a big domestic assignment like that, it shows anything is fair game for medium-sized independents,” says one source.
Some of the biggest agencies are going through management crises, parachuting in managers such as ex-Lowe boss Paul Hammersley at DDB London, Rupert Howell at McCann-Erickson (MW August 7, 2003), while Ben Langdon is taking on a new European role at Euro RSCG London (MW March 11). But mid-sized agencies such as Bartle Bogle Hegarty, Delaney Lund Knox Warren, Mother and Vallance Carruthers Coleman Priest are prospering.
This goes against the conventional wisdom that suppliers in the middle of any market are inevitably squeezed. It may be the case with retailers or manufacturers, which require great buying power to beat their rivals, but for agencies, buying talent is only one way of getting the best executives. Many are attracted by the working conditions offered in mid-sized independents.
Walsh Trott Chick Smith chairman Murray Chick says that mid-sized, independent agencies have many advantages over their larger clients. He believes there is an excess of senior managers compared with junior people on hand to run accounts, they are less likely to create a silo mentality because they are small and have less of an obsession with short-term profits.
In addition, medium-sized agencies are prepared to work with whatever other type of agencies the client employs. Chick says: “Most network agencies are suspicious of agencies outside their own family. Mid-size agencies can play cleanly with no such suspicions.”
Buyouts are unusual for advertising agencies as their networks rarely welcome the idea of losing them. But in the case of WCRS, it is understood that Havas will still keep a small stake. This will allow the agency to continue working as part of Havas’s Arnold network.
Some believe that losing WCRS could further weaken Havas and make it vulnerable to a takeover bid by a media giant such as Aegis. “Sad to say, Havas is looking vulnerable. It has got little choice but to let WCRS go – if it resists, WCRS managers can say ‘OK, we’ll consider other options’,” says Marketing Services Financial Intelligence editor Bob Willott.
Some suggest that the WCRS team will build up related marketing services companies, such as their existing design agency Dave, and that they may also look to acquire or set up a direct marketing agency and maybe a PR company. This could pave the way for greater rewards if it came to selling the business. But some doubt the obsessive Wight would want to throw in the towel.
Staging the buyout may be a gamble, but it is one WCRS managers believe is worth the risk.