On the face of it, Young & Rubicam’s acquisition of Rainey Kelly Campbell Roalfe last week for £25m solves both agencies’ problems. The London office of Y&R’s global network is to merge with UK independent Rainey Kelly, whose four partners will manage the newly formed agency – to be called Rainey Kelly Campbell Roalfe/Y&R. Y&R’s share price in New York rose by 3.3 per cent to $44.8 on news of the deal, which will give Rainey Kelly access to Y&R’s global infrastructure and client base. In return, the acquisition will allow Y&R to beef up its London operation and draw on Rainey Kelly’s creative reputation. Y&R is regarded as a more traditional agency. Y&R had UK billings of £149m in the year to June 30, making it the 16th largest UK agency, according to MMS. Rainey Kelly has slipped from 21st to 23rd, with billings of £60m in the same period. In the six years since its formation, Rainey Kelly has grown considerably to occupy the middle ground between large agency networks, which provide clients with a global capability, and smaller boutiques offering flexibility and creativity. As a result, Rainey Kelly has won few completely new accounts in the past 18 months, with the exception of the £15m Vauxhall Astra business. Rainey Kelly has pitched for – but failed to win – Sega Megadrive, PowerGen, BT, the Department of Health and Forte Hotels, and lost the BBC “computers don’t bite” public information account. But observers say the real turning point came last year when it lost out in the battle for NatWest to TBWA GGT Simons Palmer (MW June 25 1998). A NatWest insider says its £50m advertising account would have gone to Rainey Kelly if it had had a stronger infrastructure. Rainey Kelly realised it had to hook up with a bigger agency to have a chance of winning larger business. MT Rainey denies time pressures forced a quick deal, but another independent, Duckworth Finn Grubb Waters, has also been seeking a merger with a multinational. Both parties deny they were in competition for a partner. The Rainey Kelly deal should benefit Y&R, which has slipped from fourth place in MMS’s agency league table in 1990 to 16th. Observers say its “stuffy” reputation has been partially responsible for the slide. They expect Rainey Kelly to help change its image. Rainey Kelly Campbell Roalfe/Y&R will have combined billings of £210m, putting it in the top ten of UK agencies. Few doubt the commercial logic behind the deal. Grant Duncan, managing director at Publicis, says: “Rainey Kelly has good creativity, but it is also a very commercial outfit. The management are by no means fluffy butterflies. The deal will provide the momentum that Y&R needs.” But, despite the obvious benefits, the deal could run into difficulties, not least in relation to the thorny issue of who controls the agency. The four Rainey Kelly partners will take the top positions in the new company, with MT Rainey and Jim Kelly becoming joint chief executives and Robert Campbell and Mark Roalfe co-creative directors. Toby Hoare, Y&R’s UK chief executive, has reputedly been offered a range of jobs within the network, and has yet to make a decision. Meanwhile, Y&R managing director Stevie Spring and planning director Tim Broadbent’s new roles have yet to be decided. One agency source says: “The top jobs issue is always a difficult one in these situations and will have to be very carefully worked out. Whatever they might say, the top people at Y&R are unlikely to be happy at having a new layer of management from another agency coming in over their heads. “And the Y&R management team, used to its independence, could find it frustrating being a satellite office of the New York head office. Many of the projects will be blander, global campaigns and the New York office exercises quite a degree of control over the UK operation.” Another source says: “There are likely to be some cultural issues to resolve because Y&R and Rainey Kelly are quite different outfits. But Rainey Kelly’s management is hard-headed and if the relationship works at the top it should work down to the bottom.” While Y&R insists there will be no fallout from the merger, observers say this would be unusual in a deal of this type, pointing out that some employees will inevitably fear for their jobs. If these potential difficulties can be ironed out, the rewards could be substantial. Duncan says: “Rainey Kelly might not be a prolific new business machine but it has built and consolidated a number of quality accounts. It has added Virgin Cola, Virgin Rail and Virgin Direct to its Virgin Atlantic account, and the Sunday Times to The Times.” Add this to Y&R’s recent wins – including some £50m of additional Ford business, the £10m Eurostar account and £4m pan-European Moë & Chandon business – and the resulting company appears to be a formidable force. MT Rainey says: “We want this to be the first happy merger.” But plenty of mergers between multinationals and smaller local agencies have foundered. TBWA’s merger with Simons Palmer led to the loss of accounts and senior executives. Rainey continues: “We wouldn’t do it if there was not a big upside, and the writing on the wall is positive. But it is not without the challenge of physical integration, and making sure clients continue to recognise the quality of the attention and the work.” With additional reporting by David Benady
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