Getting their teeth in

When venture capitalists take over a brand, their first target for cuts is often marketing.

Culls of senior directors at the Automobile Association and Weetabix last week appeared to confirm the marketing industry’s worst fears about the fate of those practitioners whose brands fall into the hands of venture capitalists.

Weetabix, the cereal-maker bought by US private-equity firm Hicks, Muse, Tate & Furst last year for £642m, parted company with commercial director Bill Humes. His exit (MW last week) came after a business review by newly appointed chief executive Ken Wood, the former Müller Dairy UK managing director brought in by Hicks Muse last month.

Wood also kicked off a review of the Weetabix advertising account, handled by FCB London, calling for suggestions about how to take the brand forward and looking for ideas for a new ad campaign.

On the breakdown scrapheap

At the same time, the AA saw seven of its top executives swept away by incoming chief executive Tim Parker. He was appointed by the AA’s new private-equity owners, CVC Capital Partners and Permira, which bought the organisation from Centrica in July for £1.75bn. As part of the clear out, Parker – who previously worked for CVC at Kwik-Fit – axed the roles of AA Financial Services managing director Clare Salmon and AA marketing director Emma Kenny. He also did away with the AA’s customer services and marketing and strategy departments, and it is rumoured that the £70m marketing budget could be cut (MW last week). The AA is known to be considering dropping the “Just AAsk” tagline. The AA also announced the closure of three service businesses with the loss of 900 jobs.

Most people in the marketing services industry see these “vulture” capitalists as the nemesis of brands. They are viewed as financial whizzkids looking only for a quick buck, with little regard for the long-term future of the brands they buy up and sell on a few years later.

“Venture capitalists generally are not particularly sympathetic to brand investment and I wonder if they understand the value of brands at all,” says Tom Blackett, deputy chairman of brand consultant Interbrand.

An advertising source goes even further: “They are slick financiers, masters of the universe who only understand money in and money out. Marketing is too bitty and uncertain to be really enjoyable for them – they think of consumers as grubby, poor people who live in unfashionable parts of the country.”

From the moment the venture capitalists take over a company, it is effectively up for sale, says the source. This means it is hard to attract top marketing people, so the brands suffer even more. “Why go and work for a bunch of bastards who don’t want you? It is not conducive to a good, shared-objectives workplace,” he adds.

But others see all this as unjustified carping by overpaid marketing and advertising executives whose roles are often superfluous.

Nick Cloke, a director at marketing consultancy Catalyst, says: “Venture capitalists are bad news for over-staffed marketing departments where there are too many chiefs, but they are not bad news for brands. They tend to be good at identifying fat very quickly but they are not going to cut off their nose to spite their face. They do not make a cut if they think it will have a detrimental effect on the bottom line.”

Marketers can see their role in a false perspective, Cloke believes, forgetting that brands are simply a way of providing a stable route to profitable sales, not an end in themselves.

Cuts included in the price

As well-paid executives, marketing directors are prime targets for cuts. There may have been a surfeit of senior marketers at the AA – Cloke suspects that Centrica had already identified the cutbacks and outlined them to the venture capitalists as part of the sale. It is less messy to let the incoming owners make cuts – people expect them to do so anyway – than to sully your own staff relations by sacking people. This would explain why the AA cuts occurred so quickly – within days of Parker taking over as chief executive. The AA has admitted that many of the job losses “had been on the table for some time”.

Part of the new structure at the AA means each of the three divisions – roadside assistance, financial services and loans – will operate separately and the integration of back-office functions that occurred under Centrica will be reversed. This may make it easier for CVC and Permira to sell each division off separately. Alternatively, a purchaser of all three may find they can make cost savings by going back the other way, making job cuts through re-merging those back-office functions.

Venture capitalists have targeted UK brands heavily in the past five years, taking advantage of a strategy adopted by many brand owners of concentrating on their star performers and offloading the rest. Marketers have suffered at their hands – CVC bought Halfords in 2002 from Boots, cutting some 80 head office staff, while merchandising and marketing director David Clayton-Smith left the company. They have also been involved in management buyouts, such as last week’s £1.35bn takeover at Saga, the holidays and insurance company for the over-50s, which was backed by private-equity firm Charterhouse.

Hicks Muse amassed a collection of secondary British brands, such as Typhoo tea, Ambrosia, Branston pickle and Hartley’s jam and grouped them into Premier Foods, which was floated on the Stock Exchange in July. Doughty Hanson bought a variety of popular brands when it took over Rank Hovis McDougall, though it refuses to comment on its exit strategy. It also bought sportswear brand Umbro, which it floated earlier this year. Golden Wonder was bought by Bridgewater Capital in 2000 for £156.5m and its brands were sold in 2002 to Snack Factory and Walkers in a deal that was reputed to have doubled Bridgewater’s investment. Yellow Pages owner Yell group has also been bought jointly by Hicks Muse and Apax Partners.

Many deals have been highly profitable for the venture capitalists. Permira bought DIY retailer Homebase from J Sainsbury in 2000, selling it on to GUS two years later for £900m. It was reported that Permira made a return of more than five times its original investment.

Moving fast to exploit inertia

For venture capitalists, the beauty of brands is that they offer some medium-term sales stability thanks to a following of loyal customers, while their marketing budgets can be slashed without causing too much damage in the near-term. This delivers an immediate saving that the venture capitalists can use to pay back the loans they take out to fund their acquisitions.

But as one observer comments: “What amazes me is how venture capitalists think they can suddenly do wonders for brands, where some of the best minds in the UK have been struggling with them for years.”

In the case of Weetabix, it is hard to see how Hicks Muse can add value to the brand without maintaining or boosting its marketing spend. Ad agencies believe fees for creating and buying ad campaigns will be drastically reduced in the review.

Weetabix knocked Kellogg’s Corn Flakes off the number one spot in the UK cereal market in 2002, but its ad spend has been slashed since the Hicks Muse acquisition last December. There is fierce competition in the cereal market from Kellogg, which puts huge firepower behind brands such as Corn Flakes and Special K, and from Cereal Partners. One source predicts that Special K will overtake Weetabix as the UK’s top-selling cereal brand next month, as the latter’s marketing spend has diminished.

In Wood, who launched Müller in the UK 18 years ago and has driven it to brand leadership in the yoghurt market, Hicks Muse has found an executive who is well-versed in building brands. Weetabix may now begin its fightback, though some snipe that Wood made his mark in a growing chilled foods market and will find the experience of working in a mature sector such as cereals unexpectedly challenging.

The original reason the George family gave for selling Weetabix to Hicks Muse was to provide the cash to help expand a brand many see as under-exploited. Weetabix is newly fashionable as it uses natural ingredients and has no added sugar or salt. It could be launched into new areas beyond its current cereals and cereal-bar brands, from biscuits to bread and all things wheaty.

A predator sowing crops?

But such a strategy means Hicks Muse will have to fund a substantial new product development and advertising programme, something observers believe it will be reluctant to do. Even so, Wood may develop initial ideas that could be expanded by a new owner, whether it is Cereal Partners or another company.

Some question whether brands that have been taken over by venture capitalists retain much of their value when they come to be sold off. Marketing Services Financial Intelligence editor Bob Willott argues that because the acquisitions are funded by huge loans, the venture capitalists need to make cutbacks just to pay off the interest charges accruing. This often dissuades them from investing in product and brand development, he says. But it is not always bad news. After Doughty Hanson bought RHM, for instance, it staged a successful relaunch of Hovis with eye-catching new packaging.

But Willott believes there is a risk that a new owner of a brand sold on by venture capitalists could suffer if insufficient investment has been made under the previous owners. “A brand will survive a battering for quite a few years, but the risk is they are selling a brand that is even more vulnerable to market forces because they haven’t invested in it,” he says.

It would be a worrying development for marketers if it turned out that sharp-suited financial engineers could do more to build value for brands than they can. But venture capitalists will continue to target UK brands as long as they can identify enough costs to trim. Marketers will have to ensure that they are perceived as providing the muscle, rather than the fat.

Latest from Marketing Week


Access Marketing Week’s wealth of insight, analysis and opinion that will help you do your job better.

Register and receive the best content from the only UK title 100% dedicated to serving marketers' needs.

We’ll ask you just a few questions about what you do and where you work. The more we know about our visitors, the better and more relevant content we can provide for them. And, yes, knowing our audience better helps us find commercial partners too. Don't worry, we won't share your information with other parties, unless you give us permission to do so.

Register now


Our award winning editorial team (PPA Digital Brand of the Year) ask the big questions about the biggest issues on everything from strategy through to execution to help you navigate the fast moving modern marketing landscape.


From the opportunities and challenges of emerging technology to the need for greater effectiveness, from the challenge of measurement to building a marketing team fit for the future, we are your guide.


Information, inspiration and advice from the marketing world and beyond that will help you develop as a marketer and as a leader.

Having problems?

Contact us on +44 (0)20 7292 3703 or email

If you are looking for our Jobs site, please click here