To the victor, the spoils?

Rumours of a Clemmow Hornby Inge (CHI) sale have been circulating since 2005, with the advertising industry expecting the agency to hold out for a breathtaking deal. Last week’s news, revealed exclusively in Marketing Week, that it had sold a 49.9% stake to WPP did not disappoint.

The six-year-old agency sold the minority stake to the Sir Martin Sorrell-run group for a remarkable £30m in cash after talks with Havas broke down. It was a sweet victory for Sorrell over his rival Vincent Bolloré – particularly because the deal was reportedly done in a week.

But not everyone is convinced about the CHI-WPP marriage. With the £30m apparently being paid upfront to founding partners Johnny Hornby, Simon Clemmow and Charles Inge, doubts are already being raised about their long-term commitment to the agency. Questions are also being asked about why Sorrell paid what many believe to be over the odds to buy into a traditional advertising agency in a saturated market.

A source close to the deal suggests that it was not just the charms of Hornby – often described as the “Maurice Saatchi of the Blairite generation” – that won over Sorrell, but also the other two partners, the meticulous planner Clemmow and creative partner Inge. The inclusion of direct specialist Hall More CHI, Naked Inside and CHI Design – all of which will be fully integrated into CHI & Partners, as it will now be known – finally sealed the deal.

However, some from the Havas camp claim that Sorrell struck the deal with the new business powerhouse purely to spite Bolloré. “CHI’s growth structure is flattening out and for that reason it is grossly overpriced,” says a source. “Following the United debacle, Sorrell could afford to overpay for an opportunity like CHI.”

The havas strategy
Bolloré’s failed bid, led by his trusted lieutenants Havas chief executive Fernando Rodes and Euro RSCG chief executive David Jones, is believed to have fallen down because the group wanted a 51% stake in CHI rather than a minority stake.

Sources also suggest that the Peugeot-Citroën network Euro RSCG, which has been looking for a “London solution” for the past 18 months, could not afford to pursue a majority stake in an agency that handles Toyota and Lexus business. The solution was a complicated one that would have seen Havas buy an initial 49% stake with the option to buy 2% at a later date. However, it is claimed a “gentlemen’s agreement” would have been struck meaning the 2% would never have been bought. If it had been, CHI would have had the option to cash out, thereby breaking the “spirit and strategy behind a Bartle Bogle Hegarty-style deal”.

BBH group chief executive Nigel Bogle says he admires CHI for managing to preserve its independence while being part of WPP.

But a source who was involved in BBH’s 49% sale to Leo Burnett in 1998 counters/ “The CHI-WPP deal is anything but a BBH-style deal. CHI lacks the experience or the creative clout of BBH. BBH was always a safe bet, but CHI’s growth and commitment to grow could pose some risks in the future.”

The source says the valuation of the agency at about £60m makes it too expensive for its size. CHI’s revenues for the year ending June 2006 were £18.5m and it made a pre-tax profit of £2.1m in 2005 on a turnover of £28m.

The main criticism levelled at CHI is that its creative output does not match its new business record. Hornby admits the agency has not produced a campaign that matches Fallon’s Sony “Balls” or Wieden & Kennedy’s Honda work but says: “Because we were so voracious with our new business, I think sometimes people think of us as only that – an agency that wins new business. We continue to have a great creative pedigree, though, not just one ad for which we might be widely known.”

Hornby points to the British Television Agency of the Year award in 2004 and its top 20 ranking in the 2005 Gunn Report, before adding that CHI will have the most nominations at this year’s D&AD awards with four.

David Wethey of Agency Assessments International says: “It is sometimes difficult to create award-winning stuff when you are so focused on growing as a business.” He calls the agency a “class act” and says that the tie-up with one of the largest advertising groups in the world will give CHI the resources to rival BBH and Wieden & Kennedy.

Andrew McGuinness, co-founder of Beattie McGuinness Bungay, believes the “fantastic” deal will provide both the agency and Hornby with a bigger stage for their ambitions, while another rival adds that Hornby has an “insatiable appetite to succeed” and that Sorrell will give him a wider platform.

Industry endorsement
One advertising executive thinks it is one of the industry’s “great deals”, pointing to the money that the agency has made in the process.

However, with the recent collapse of WPP’s United in mind, critics predict a tumultuous relationship with CHI. One advertising rival says: “Sorrell has a magpie’s eye for jewels, but his history of dealing with jewels is pretty poor. It is not only HHCL [more recently United] that suffered. His acquisitions such as Lambie Nairn [the branding agency] have failed to reap rich rewards as well.”

But Hornby stresses that he has not given away a majority stake to WPP and says CHI will continue winning new business and producing good creative work. Neither will the agency be the London office of the United network.

Apart from boosting their bank balances considerably, the deal will allow CHI’s partners to build a full-service offer, with access to the media planning and buying power of Group M. It will also give the agency international reach for some of its key clients, including Carphone Warehouse, Toyota and now Samsung, which awarded CHI the brief to launch its new flat screen television last week.

Pungent criticism
Given the minority stake, though, some are questioning whether CHI will be worth Sorrell’s time and effort. One WPP source says that network agencies like JWT, Grey and occasionally Rainey Kelly Campbell Roalfe/Y&R find it increasingly difficult to lure domestic clients, and CHI could give WPP easy access to that sort of business.

But one advertising expert believes Sorrell is showing his age (62) if he has been enticed by the “star quality” of the agency, which counts European trade commissioner Peter Mandelson and Carphone Warehouse chief executive Charles Dunstone as supporters.

The source says: “I just cannot understand why WPP has paid a premium for a minority stake – it just does not add up. But Sorrell’s history of smart deals for badly run networks such as JWT and turning around their fortunes suggests that he will not have paid that sort of money without getting any sort of assured return.”