Does i-Level have its eye on the cash or its future interests?

Shareholders in i-Level, the UK’s largest independent online media agency, are cashing in their chips. Co-founder Charlie Dobres, who took a backseat as non-executive director of the business earlier this year, pocketed £4.6m when he sold a slew of shares back to the company in February.

Last week, the company disclosed that it had hired Ingenious Media, the new media investment and consultancy business, to advise it on future options. i-Level has had numerous approaches from marketing services businesses about buying the agency.

However, PHD founder David Pattison, who was made chief executive of ILG Digital – the holding company of i-Level and Generator Consulting – in January, says i-Level is definitely not for sale, though he admits that a stake could be off-loaded.

“We are looking to do something with the business that is not about selling it; we want to maintain control over our destiny,” he adds. “We think there are opportunities internationally to grow and move into new markets.

“If we want to launch a business in Europe, we are starting from a place where the only real knowledge we have is an airline timetable and people we know. If we could find people to help us get into those markets, we might need finance.” 

ILG Digital’s results for the year to March 2006 show the company held £12m in cash, a sum that has probably grown substantially since then. So the company is hardly in need of finance for expansion. As one source says: “They are more likely to be buyers than sellers.” 

i-Level’s profits before tax soared nearly 300% to £3.142m over that period. Turnover (billings) nearly doubled to £54m and gross profit rose to £7.6m.

Some believe the search for “partners” is also about finding a tax efficient way for i-Level’s owners to get hold of the money.

Shareholders include co-founder Andrew Walmsley, Pattison and senior directors – including BBH founder John Bartle – as well as a number of the company’s 120 staff. The company has also hired marketing services accountant Bob Willott as a non-executive director.

One source says that dipping into the £12m reserves would incur a tax charge of some 40%, whereas selling a stake could provide income taxed at less than 10%.

It has been suggested that Beringea, the venture capital company that took an 18% stake in i-Level in 2005, could be replaced by another investor. But Pattison says it is very early in the process and no decisions have been made.

i-Level is one of the last remaining independent digital media agencies in the top ten in the UK. The second biggest independent, Unique Media, was bought by Anglo-German design outfit Syzygy (which is 30% owned by WPP) in March. As Unique deputy managing director Simon Burgess says: “The Syzygy deal allows us to create end-to-end solutions, from building a website to driving traffic there. We were purely a media company, but there’s a glass ceiling unless you have scale.” 

This summer, online marketing agency Dare was bought by Canadian company Cossette, which will pay up to £30m over five years. Other deals include the purchase of Cheeze and Jaywing by Ben Langdon’s Digital Marketing Group this year for £24m.

One observer says the real rationale of these deals is for owners to realise their wealth rather than a concerns for expansion. So i-Level’s next move is being closely watched to see if it really is about finding a new strategic direction or is simply a clever way of paying off shareholders.