What possessed IPG to make such a hasty deal with Inferno?
The pressure for IPG as it waits to see what happens in a post-‘Publicom’ world has forced it to make a hasty deal that has quickly gone wrong, says Dominic Mills. But in this climate of uncertainty and fear botched deals really don’t help.
It’s a fair distance from Eccleston Square near Victoria to IPG’s headquarters on Avenue of the Americas, but the distance will seem dramatically shortened when, in a few days time, a few of the corporates in its mergers and acquisitions department are taken out at dawn and put in front of a firing squad.
There’s two reasons why this needs to be a public execution. One is because of a deal gone wrong – a small one and not fatal in itself; the second is because it begins to undermine whatever claims IPG might have to credibility with the people who will ultimately decide whether it retains its independence or not: the Wall Street analysts.
Thus IPG, partly to ‘encourage’ the rest of its M&A team, and partly to show Wall Street it can pin the blame on some rogue elements rather than some institutional malfunction, needs to be seen to take action.
The ‘small’ problem in Eccleston Square concerns IPG’s purchase last month of Inferno, a smallish integrated London agency with a reputation perhaps bigger than it ought to be.
It’s not clear exactly how much IPG paid, but an initial figure of £11 million is bandied around, with another decent chunk to come in an earn-out. Given the latest published accounts for Inferno (to 2012 year-end) in which it recorded gross income of £13.7 million, and an operating profit of £2.3 million, this seems about right.
That’s what happens when you are under pressure, which IPG certainly is while everyone waits to see what happens in a post-‘Publicom’ world.”
Only it all seems to have gone wrong – already.
The assiduous Bob Willott, a man with an almost forensic-like ability to spot the cracks in any agency balance sheet, flagged up last week a vertiginous drop in Inferno’s latest profit figures – so steep it has actually gone into a loss of £270,000.
In itself, this may not be a big deal – although it was surely not what IPG expected, and not what it paid a decent chunk of money for.
So what happened to due diligence? Was it done badly? Or not done at all?
It’s a reminder of that old saying: ‘buy in haste and repent at leisure’.
But that’s what happens when you are under pressure, which IPG certainly is while everyone waits to see what happens in a post-‘Publicom’ world. By common consent, it is neither fish nor fowl; not large enough to take on the likes of WPP or Publicom, nor robust enough to stand alone.
And that pressure moved swiftly down from HQ to Eccleston Square, where the need to do something about Draftfcb – its third network after McCann and Lowe – was keenly felt.
Draftfcb has long seemed a ho-hum operation, drifting along in an inconsequential way and bearing no relation to either integrated outfit Draft or one-time above-the-line powerhouse FCB, the two constituent parts that were crudely glued together a few years ago.
It’s a serious indictment of a multinational network’s standing if it has to cede control of its name when it makes a small, local, purchase.”
You can tell how bad things were by the fact that the Inferno deal was effectively a reverse takeover of Draftfcb by the small London shop. Out went the old Draftfcb London management, and in came the Inferno guys.
This sort of thing is not new – indeed IPG has form in this area as those who know the chequered history of Lowe, Lintas, and Still Price, from the 90s, a will know – but it is unusual. It’s a serious indictment of a multinational network’s standing if it has to cede control of its name when it makes a small, local, purchase.
But this was exactly the case with Draftfcb London, or as it rechristened itself last month, Inferno Draftfcb.
Personally I had my doubts about the deal, not for any concrete reasons but because of the sheer corporate bollocks with which the two parties announced the deal. You can read the whole monstrosity here.
But the litany of cliché in the release – ‘deep bench strength’, ‘enhanced capabilities’, ‘instant critical mass’ and ‘shared media-agnostic vision’ – ran so deep it felt they actually couldn’t think of anything meaningful to say. Plus they used the word ‘captology’, which raised my hackles.
But while I didn’t feel the deal might come to pieces financially (and not so soon!), it seemed like a cultural and organisational nightmare waiting to happen; that’s what happens when you have management by Sellotape.
Ironically, news of Inferno’s financial meltdown came in the same week that IPG announced the purchase by Lowe of hotshop, Profero.
No doubt there will be more panic in IPG’s M&A department at the thought they might be repeating themselves. As Willott points out, they can’t have bought Profero for its profits.
And so now the pressure falls on IPG to prove not only that it has a strategy, but that it can bring it to life, although how likely this is, I’m not so sure.
Nothing is likely to happen immediately. The Publicom era has yet to start, and the future is unclear. What will WPP do? What is really going on at Havas now that David Jones has gone and Bollore jnr is in charge? And what might the sleeping giant that is Dentsu/Aegis be planning?
In this climate of uncertainty – and fear in some quarters too – botched deals don’t help.
Dominic Mills is a writer, editor and media consultant. His opinions are his own.