A swallow brings summer?

VCCP’s partners are set for a windfall, as Chime prepares a £16m takeover deal. Selling out to a network or holding company that wants to freshen up or establish a creative reputation is an established exit for start-ups. But Tim Bell has poor

Vallance Carruthers Coleman Priest (VCCP), the agency founded in 2002 with 02’s £35m mobile phone business, has spent the past week in discussions about selling out to Tim Bell’s Chime Communications (MW last week).

Then news emerged that former executives of the collapsed agency D’Arcy – Barry Cook, Nick Hastings and John Quarrey – were in the process of starting up their own agency, with ex-Euro RSCG planner Malcolm White.

These events underline the cyclical nature of the advertising industry. Major networks become stultified by bureaucracy and cease to offer the novel creativity craved by brand owners. Ad executives break away from the majors and set up their own “boutiques”, offering unfettered creativity, before selling out to a larger company after a few years.

However, the advertising agency cycle has changed of late as independents have found ways to fund themselves, without selling out to a major advertising network. Indeed, the last time a creative hot-shop of any note was “injected” into a network was in 1999, when Young & Rubicam in London bought Rainey Kelly Campbell Roalfe, putting the agency’s management in charge and bolstering its creative appeal.

Sell the business, free your spirit

These days, there is a tendency for independents to sell out to listed financial vehicles. Delaney Lund Knox Warren & Partners tied up a £38m deal earlier this year, selling out to acquisitive marketing services group Creston, formed by ex-Saatchi & Saatchi operating director Don Elgie. This approach allows an agency to maintain its spirit of independence, getting funding to expand without having its creativity blunted by multinational processes and politics.

Then there is the model of Nitro (MW last week), which has bought the 2000 start-up Soul, and has a small global network working for multinational clients.

The Chime-VCCP deal would be of another class. Partly City financed, it offers the agency the benefits of the Chime umbrella, with client referrals through Chime’s PR businesses, plus funding for expansion, but leaves it a high degree of independence.

Chime and VCCP refuse to comment, beyond confirming they are in discussions. But it is understood Chime is likely to pay up to £16m for the agency, including earn-outs for the four partners – executives Ian Priest and Adrian Coleman, planner Charles Vallance and creative Rooney Carruthers. It is uncertain how VCCP, the UK’s 21st-largest agency by billings, would fit into Chime’s structure, although some sort of supervisory role is envisaged for the senior team over Chime’s advertising interests. Chime has over 25 subsidiaries in three divisions. Two-thirds of its turnover and profit comes through public relations companies, such as Bell Pottinger, with the rest through research businesses and integrated marketing division Heresy IMS Group, headed by former BBC marketing director Sue Farr. It is thought VCCP would sit in this division.

Some are puzzled by the VCCP partners’ decision to sell out to Chime after only three years in operation. After all, Chime has done a poor job with previous ad agency acquisitions – its takeover of HHCL in 1997 was considered disastrous and ended with Chime handing operational control and a 49 per cent stake of the agency to WPP Group. Chime axed its standalone agencies Roose and Will Pond-Jones Collective in 2003.

In need of a new air-supply?Cynics suggest that Chime is desperate to impress the City with a deal, while VCCP is anxious to sell before it loses its major client. The partners must be concerned about the agency’s dependence on 02, which spends £35m a year and accounts for about half the agency’s £72m billings. There is speculation that 02 could be bought by Dutch telecoms company KPN, slash its marketing budget, disappear from the market or otherwise cease to be a reliable client. VCCP is also highly dependent on ING Direct, which spends £163m a year Creston’s Elgie says he has never had any discussions about buying VCCP. “It is not something we would be interested in because it is only three years old and is very client-dependent. We like to buy companies with at least ten years behind them. “

Martin Troughton, a former partner at direct marketing agency HPT Brand Response, which was reversed into WPP’s struggling Impiric, says he would have expected VCCP to reverse into a larger group, taking over management and creative control. He points out that Vallance and Carruthers are “big-agency people”. He wonders: “Why maintain their independence and grow slowly if they want to play in the big league?”

Even so, the deal has supporters. Chime can expand its range with an attractive creative shop-front to sell integrated marketing services, they say. It has close ties with VCCP – Priest was managing director of HHCL, while Coleman was chief executive of Chime’s AMD division.

Andrew McGuinness, who has recently started BMB, a breakaway from TBWA, with Trevor Beattie and Bil Bungay, says: “VCCP has a good business. They are talented people with a reputation for integrity as employers. This deal is about finding funding to take the agency to the next level. Chime is an interesting company to sell to, not so big that it has fixed processes, and VCCP will be the main advertising group within it.” Another observer says that VCCP offers a higher degree of integration than almost any other London agency and that this will fit in well at Chime.

Bell must ring more clearly

However, Marketing Services Financial Intelligence editor Bob Willott sees it as an opportunistic play that may prove successful, but which raises questions about the strategic direction of Chime. He says Chime is powerful as a PR-focused business. “Since it parted company with HHCL and suffered heavy losses, it has restored its balance sheet, but it has been unclear where Bell plans to take the company. He hasn’t talked about building a multi-disciplinary marketing communications group, which is what would happen with VCCP. I think there needs to be more clarity about what shape Chime will take over the next five years and what the succession plans are,” he says.

There will be precious few independent agencies left to buy if Chime snaps up VCCP. Mother and Clemmow Hornby Inge have found no one they want to sell to. Speculation surrounds the intentions of FCB and Lowe London, with both having been linked to CHI. Lowe has also been in talks with eternal wallflower DFGW. TBWA could buy CHI for its (ex-TBWA) management. Miles Calcraft Briginshaw Duffy and Farm are also potential targets.

Whatever the immediate outcome, as long as there is a steady stream of new creative outfits launching to give brands an alternative to the big agency networks, marketers will be content. VCCP’s sale after just three years should give other agency start-ups – such as BMB and the ex-Darcy-ites – the added confidence that only the promise of certain wealth can convey.

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