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Is Adam & Eve into DDB just about the money or will it create another Omnicom super agency in London?

Should we feel sad or glad for them? Viewed one way, Adam & Eve has just paid itself an awful lot of money to acquire a decent car account, Volkswagen. Looked at in another, what is arguably the UK’s most creative independent hotshot has sold itself short by doing a deal with an American multinational long before it needed to.

But, hey, advertising’s a business not a creative self-indulgence. Think of the money, £60m of it: you don’t get offered that every day.

My calculations (aided by Campaign reportage), indicate that the three A&E founding partners, James Murphy, David Golding and Ben Priest, will net about £45m if they are as smart at building their business under the DDB flag over the next five years as they have been, over the previous five, under their own. The balance will be paid to other members of the top A&E team.

Make no mistake about it, most of the £60m will be in earn-outs, geared to future performance. Omnicom’s chairman and chief executive John Wren may be paying top dollar for his prize, but he wasn’t born yesterday. That, of course, has not stopped feverish industry speculation about how much the A&E boys have trousered upfront.

Evidence is thin on the ground. The last A&E figures to be published at Companies House relate to the year ending December 31 2010. They reveal pre-tax profit of £1.4m on turnover of £17m – an operating margin of only eight per cent. The current figures confronting Omnicom accountants are likely to be a lot more flattering: quintuple that profit level, given A&E’s subsequent new business record, which counts among its triumphs the capture of the £25m Halifax account. A figure of £8m operating profit on £80m turnover is being hawked about. So, £20-25m seems a likely upfront total. Which, even allowing for the three partners taking nearly three-quarters of it, should mean a lot of happy millionaires out celebrating today.

Are Omnicom mad to be paying that sort of money for a reverse takeover of DDB London? It’s not obvious that they are. For sure, there are unmistakable signs of desperation in paying a price so heavy on multiple. But then, look at the plight of DDB London, which had reached the point of irreversible organic decline with the loss of the £35m Virgin Media account and its award-winning Philips business. Something radical needed to be done at the London flagship, and opportunities with the creative momentum of A&E are few and far between.

Remember, WPP is in the business of making the most money but Omnicom, now slightly demoted to the world’s second largest marketing services organisation, is known for acquiring the most creative brands. From that point of view A&E looks a shrewd acquisition, even allowing for the inevitable financial fallout from The Telegraph/FT, Benecol/Flora and John Lewis/Harvey Nichols account conflicts.

Nor should the chemistry of fusion, which tends to bedevil agency ‘mergers,’ be a problem here. For the simple reason that A&E will hold all the senior management positions at the new agency, with the exception of agency chairman – retained by DDB’s Stephen Woodward – and control of the digital agency, Tribal DDB – where Tom Roberts will hold sway.

Having swapped the agency runabouts for a Rolls Royce, what will Murphy & Co do with all that extra horsepower under the bonnet? In their sights will be the supreme (but relatively rare) example of successful independent/network agency fusion, AMV BBDO. Although doing some damage along the way to RKCR/Y&R (whence they litigiously came) will probably be more immediate among their priorities. The next five years could be quite interesting.

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About Stuart Smith

Stuart Smith is one of the most incisive and knowledgeable commentators on global marketing. He was a long-time editor of Marketing Week during the period when it was the UK's leading marketing, media and advertising specialist publication. Visit Stuart Smith Blog.
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