Day exit threatens to foil Aegis plan

The resignation and sudden departure last week of Aegis group finance director Colin Day has raised questions about the strategy of the owner of Europe’s largest independent media buying agency, Carat (MW April 13).

Observers wonder whether Aegis, one of only two European stock market-listed media independents – along with Tempus – will continue to fend off predators and preserve its independence. They question how its strategy of acquiring US market research and media operations will fare under new direction.

Day’s exit came only months after reports that banks had sought assurances that he would remain with the company following the appointment of former News International managing director Douglas Flynn as chief executive.

Flynn replaced Crispin Davis, who also surprised the City when he quit last September to go to struggling publisher Reed Elsevier.

At the time, Aegis had been negotiating a new five-year &£200m bank loan, which has since been put in place.

One City analyst says: “They {Davis and Day} have done very well over the past five years in building Aegis up. Investors don’t really like that [changes] if the management has done well.”

Although Davis and Day were described as being as different as “chalk and cheese”, they were considered to be a two-man team. Working closely together for four years, the pair helped Aegis recover from a period of losses in the early Nineties.

In unaudited preliminary results, Aegis reported pre-tax profits of &£281.7m for the year ending December 31 1999, up 27 per cent on the previous year on turnover up 16 per cent to &£4.79bn.

One City analyst claims that a “personality clash” with Flynn led to Day’s departure.

He has been replaced by Jeremy Hicks, former group finance director at Abbott Mead Vickers, who helped implement the agreed take-over of the agency by Omnicom. While at AMV, he also completed 14 acquisitions and developed several business start-ups for the group.

Another media analyst says: “Hicks has plenty of experience dealing with the City through a lot of changes at AMV and if it [Aegis] has a strategy for acquisition, he will pursue it with enthusiasm.”

But another observer says that Aegis needs someone to get the money in, not a gentleman corporate financier like Hicks.

A spokesman for Aegis insists that “there will be no change in strategy” under the new management, which has overseen an expansion of Aegis’ range of services into the relatively high-margin business of market research.

The diversification from Aegis’ core business of media buying began prior to Davis’ departure with last year’s $297m (&£185m) acquisition of Market Facts, which specialises in customised market research in the US.

Aegis claims there is strong growth in global customised market research of six to ten per cent annually.

Acquisitions in market research have continued following Flynn’s appointment, with the company snapping up Motorsearch, Asia Market Intelligence and Ipsos Access Panels.

Aegis claims that in 1999 Carat had net billings of approximately $10.3bn (&£6.4bn), Market Facts an annualised revenue of $160m (&£100m) and AMI an annualised revenue of $37m (&£23m).

Other acquisitions that have been completed under Flynn include the purchase of an Argentinean media agency and Scotland’s Feather Brooksbank. The latter was merged with Carat Manchester in a move designed to strengthen Carat’s regional representation.

Aegis’ target is to be among the top five media buying operations in the US within the next five years through acquisitions and wins such as the $200m (&£125m) Pfizer account. But industry insiders claim that US acquisitions such as Media Buying Services International, now called Carat MBS, will not be sufficient to propel the agency into the top five.

One industry insider says: “The big issue is how to conquer that [US] market. There are no sizeable media buying companies to acquire.”

If organic growth is not achievable and large media agencies are unavailable at a suitable price, then Aegis will have little option but to consider buying, or be bought by, a full-service agency group.

If the Aegis share price continues to fall back from its 52-week high of 255.75 (closing at 157.5 last Friday), then Flynn and Hicks might not get the chance to conquer the US market before the group is swallowed up by one of the major networks.

True North, which wants to expand its European media operation, and WPP, a major global network with only one media brand, MindShare, could well be interested.

WPP rivals Omnicom and Interpublic already have two global media brands each – PHD and OMD, and Initiative and Universal McCann respectively.

Aegis came close to merging with Zenith Media a while back and rumours of a possible deal continue to resurface, but industry insiders claim that the latter’s shared ownership between Saatchi & Saatchi and Cordiant Communications, owner of Bates, are an obstacle.

An observer claims that the rumoured talks with Havas Advertising are also likely to come to nothing, as a merger could lead to regulatory competition problems in Europe.

Aegis’ buying operation has also been hit by losses of the Volkswagen account in Germany and the UK, Nissan in the UK, and the Reckitt account as a result of the Benckiser takeover. Wins include Bertelsmann’s music division BMG and the ISP Lycos.

Flynn and Hicks may find that the strategy put in place by Davis and Day begins to unravel, unless they can retain investors’ confidence and make more successful acquisitions in the US.