Analysis – Havas

Clemmow Hornby Inge, one of the UK’s most successful independent advertising agencies, says it is talking to a number of holding companies about selling a minority stake in the business.

French network-owner Havas has admitted it is in talks to buy into CHI (MW last week), though its boss Vincent Bolloré says any agreement is "weeks away".

The purpose of such a deal would be to bolster the international standing of CHI and Havas, although some observers wonder how the French holding company would benefit. It already owns the Euro RSCG network, which has 233 offices in 75 countries. Bringing CHI into the fold would add little to its offer, say sceptics.

But CHI needs to realise its financial potential while it is still growing fast. Other independents have waited too long to sell and have missed the boat.

CHI partner Johnny Hornby says a network deal – similar to BBH’s 49% sale to Leo Burnett in 1998 – would allow CHI to retain its independence, create a micro-network of five or six offices internationally and have a global media buying partner, in Havas’ case, Media Planning Group.

Hornby says: "We have enjoyed some good talks with Havas among others, but we haven’t done a deal yet. We will not merge our agency. We will not sell anything other than a minority stake."

CHI has built up billings approaching £200m since its launch five years ago with founding client Carphone Warehouse. Its strong new business performance has been partly down to the relentless networking abilities of Hornby.

As well as leveraging Hornby’s "black book" of contacts, CHI has been successful in "demystifying" advertising for clients. It holds "big ideas days" at which prospects and the agency brainstorm ideas about the brand, its consumers and its market. Clients feel that they participate in creating the advertising strategies.

As one observer says: "CHI makes it easy for clients to buy them – they offer them a shared agenda. They have understood the potency of allowing clients to feel in control and overcome their fear that advertising is a mysterious black box into which millions of pounds can disappear."

Limited appeal
However, CHI’s ads are viewed as creatively middle of the road, suitable for retail, financial and utility operators used to bludgeoning simple messages about price and availability into consumers’ minds. In that respect, the agency is not so different from Havas-owned Euro RSCG – which used to handle catalogue retailer Argos, now one of CHI’s biggest clients. Another observer notes: "I can’t see the point of Havas having another middle-sized ad agency that isn’t a creative hot shop." He adds that CHI’s approach is "very UK-centric" and questions if it would work internationally.

Hornby stands by the agency’s creative work, but says: "We didn’t set out to be a creative boutique, we set out to find big ideas that work well for brands and put those over in ways that are very effective."

CHI made a pre-tax profit of £2.1m in 2005 on turnover of £28m. Profits may have increased to between £3m and £4m since then and a multiple of eight times would value the company at between £25m and £30m, far below the £60m sources say the company believes it is worth.

Weakened hand
Industry analyst Bob Willott, editor of Marketing Services Financial Intelligence, believes that, although CHI has a direct offer through Hall Moore CHI and media strategy with Naked Inside, the absence of a significant digital offering seriously weakens its hand in negotiations.

Talks with Omnicom last year stalled – possibly because the holding company wanted a majority shareholding or perhaps over price. But with every missed opportunity, the pressure grows on CHI to strike a deal. This could be one of the last chances left for the agency’s owners – who include politician Peter Mandelson – to hit the jackpot.