The three young men whom we last met as they were planning their new agency have prospered. Their bank loan has been paid off and they have a long lease on some breathtakingly stark office space. Their client list is a mixture of small, high-visibility accounts, including an adventurous wine merchant and an aggressive charity, a solid assortment of medium-sized but growing brands, and a couple of blue-chip names. Their work is considered highly creative, and their billings this year will pass $40 million. They are profitable, well established, and dissatisfied.
The problem is that they now find themselves on the advertising plateau. Their growth rate has slowed down after the rush of early successes. They are past the days of being known as a hot young agency but still a long way off from being big enough to compete with the international monsters. And, almost worst of all, their neighbors on the plateau are all those dreary agencies they used to sneer at—the plodders who somehow manage to hang on to their clients every year despite their pedestrian campaigns and middle-aged reputations, the agencies that will never really make it. The very thought of being in the same league as they are is enough to make you rush out and order a flame-red Ferrari just to show the world that you’re not pedestrian and middle-aged and gray.
Life on the plateau brings other, more insidious problems than the cooling of a hot image. The agency’s metabolism has slowed down now that those initial adrenaline-inducing worries of failure and bankruptcy have been left behind. It is taken for granted that there will be a steady improvement in everybody’s personal circumstances: raises and bonuses, cars and promotions. And once these are taken for granted, it is only human nature to want more. Other people in other agencies are getting more. Maybe it would be worth taking a nibble at the grass on the other side of the fence.
Accompanying these stirrings of unrest is often a certain complacency, which shows itself in different ways according to position and salary level. Junior members of the agency arrive later in the office and leave earlier for the health club. The middle ranks take longer lunches and conduct their affairs on expenses, while the top people cultivate top people’s hobbies and interests. These will vary: collecting art, buying shares in racehorses, or acquiring country houses—the only common factor being that they cost enough money to necessitate substantial personal loans, which will influence the agency’s decision-making process in the years to come as the interest payments bite deeper and deeper.
For the three proprietors of the agency, there is a sense of limited achievement, which becomes more limited as time goes by. After all their hard work, they’re sitting on a moderately successful medium-sized agency that is in danger of losing its edge. Life is comfortable enough, but they don’t have any real money. And to get into the big league, where billings are a billion dollars or more, could take forever. (In advertising, this is a period that exceeds five years.) What is to be done to regain the momentum of the agency and to make its founders the rich men they deserve to be?
There are four options.
The first, to carry on with renewed vigor and build the agency over the next ten or twenty years into a colossus, is dismissed without much discussion. It’s not quick enough.
The second is to go public. Given Wall Street’s current fascination with advertising, this might be possible despite the agency’s relative youth and its comparatively modest profits, and the money would certainly be useful to pay off the mortgage on the place in the Hamptons. But there wouldn’t be enough to make a real fuck-everybody killing, and there would be some long and restrictive service contracts. On the whole, it wouldn’t be that much better than the first option.
The third choice is to take over another agency—a nice sleepy old agency with its own office building—and leap from medium to big overnight before going public on the back of the combined profits and assets. A perfect solution, except for two major snags: Taking over another agency requires more resources than our three young men can raise without signing away their lives, and in any case there is nothing left to take over. The Saatchis and their ilk have been out shopping for years, and there are no more bargains available.
This leaves one last option, and it looks increasingly attractive as the possibilities are explored. It is to be taken over by a bigger agency, but taken over only in a technical sense. The practical result would be a reverse takeover, with the three young men ending up on top of the heap.
Obviously, the victim must be chosen with great care. It has to be an agency that knows it lacks what the young men can provide: a reputation for good creative work. It has to have a base of docile clients who won’t stampede as soon as the new regime moves in. And, ideally, it should have tired or soggy management that won’t offer much of a struggle over the transference of power.
At any given time, there are always two or three agencies around that more or less meet these requirements. Advertising is a business that demands constant enthusiasm from top management. When this flags, the agency starts to wallow, and without an injection of fresh blood, it will eventually lose clients and staff. It has happened a hundred times, and has provided a hundred opportunities for the kind of maneuver that the young men are now planning with such excitement. The adrenaline is back! It’s like the old days, except that the potential rewards can now be measured in millions.
The publicly known facts about the likely agencies are studied. One of them seems to be sufficiently moribund, and its client list is analyzed to see whether there would be any serious areas of conflict between brands or companies. It would be miraculous, for instance, if their disposable diaper client was to stay with the merged agencies once we’d arrived with our disposable diaper client. And so client lists are compared, only superficially at this stage, to see whether they mesh.
Once it looks as though the two agencies could be put together without any significant client defections, the next step is to make contact with the victim agency’s owners to get an idea of their levels of interest, competence, greed, ambition, and usefulness. (Occasionally, the first overture is made by the victims, who have seen the writing on the agency’s wall and who are looking for a comfortable retirement. This can save a lot of time and lunch bills.)
A drink is suggested in a suitably quiet bar, somewhere that requires a tie and is thus unlikely to be full of other advertising people, and the preliminary circling begins. Each side is at great pains to be flattering about the other side’s agency, and under the cover of small talk there is an almost-audible whir of brains as personalities are assessed to see how things might work out in the event of a deal. If each side is hopeful that it can get what it wants out of the arrangement, whether power or money or an important and well-paid but undemanding title, the meeting ends on a cordial and promising note: We must talk again soon.
And talk they do, in greater and greater detail, at lunches and dinners held in progressively more secretive circumstances. It might spoil everything if the cat was to jump out of the bag before the clients had been primed, and so private suites are booked in hotels and enormous trouble is taken to keep well away from prying eyes and flapping ears, which is not at all easy in the advertising business. This search for the totally discreet table was once taken to extremes by the principals in a deal involving two London agencies; they decided that the only safe place to have lunch was Miami.
The greatest imponderable, chewed over endlessly, is how the clients are going to take to the news of their chosen agency getting into bed with a bunch of strangers. While the merger will be presented as a marriage made in heaven that will benefit absolutely everybody (“complementary areas of expertise, greater depth of management, improved creative resources”), it would be wildly optimistic, even by advertising standards, to assume a zero casualty rate. But how many clients will feel that their noses have been put out of joint? How many can be soothed into a state of acceptance? How many will decline the advances of other agencies that will be made as soon as the merger is announced? Conjecture can go on indefinitely, but conjecture is no substitute for action. You have to try it and see.
A lesser imponderable is the reaction of the staff. Some will stay and some will go, but, unlike clients, they are at least subject to some forms of control, and most of them are susceptible to inducements of one kind or another to keep them in line. Nevertheless, it’s a problem. When two fully staffed agencies get together, there are two sets of everyone. To make financial sense of the merger, the combined payroll will probably have to be cut by a minimum of 25 percent. Naturally, each agency is reluctant to sacrifice its own people, sometimes out of loyalty and a genuine belief in the abilities of its staff, sometimes out of a crude instinct for self-preservation: If we outnumber them, my personal position is likely to be stronger.
But before the haggling over staff can begin, there are two matters of the utmost importance and delicacy to be decided, so fundamental that lack of agreement can bring the cozy negotiations to a sudden and permanent halt.
The two are closely linked, and the first is the choice of a name for the new agency. There are many possibilities here, since each agency is bringing to the merger its own precious collection of names or initials; the combined total will never be fewer than four, and it could be as many as eight. The logical solution, one might think, would be to string them together in alphabetical order and get on with something more important, but that seldom happens. The order of the names and initials is crucial because it is a public statement about who is in charge of the merged agency. Also, everyone involved in the merger is experienced enough to know the fate that lies in store for the names on the end of the list: dropped from daily speech and relegated to the letterhead.
No wonder the atmosphere is charged as the nettle is tentatively grasped: “Has anyone had any thoughts about the name?”
Yes indeed. Marvels of self-interested invention are put forward to support the view that the other side’s name should come last. If it happens to suit the argument, even alphabetical order—“it’s so much easier for people to remember”—might be tried. But that can always be countered by another, equally suspect assumption: “Our clients wouldn’t be happy.” (Agencies like to believe that clients share their preoccupation with names.)
In fact, this stage of the negotiations is interesting, and the final decision revealing, because it reflects the result of the first trial of strength between the two sets of management—the first of many accommodations that will be made by the weaker side in deference to the stronger. One side always needs the merger more than the other, and the degree of need can usually be measured by the concessions that are made, not only in agreeing on the name but in the jockeying for status that follows.
Two chairmen, two managing directors, two creative directors, two financial directors: There is an entire corporate Noah’s Ark to be reshuffled and retitled, and it is damn tricky work. Joint titles won’t do, since nobody takes them seriously, and there is a limit to the number of labels available in any single hierarchy. But all is not lost, because here, a sop to many an ego, the inspired notion of a holding company comes into its own, with all its multifarious divisions: International, Acquisitions & Development, Public Relations, Communications Studies, Management Consultancy—a brave new world as yet uninhabited by a single executive. Surely room can be found in this exciting and infinitely elastic structure for the overflow from the agency boardroom.
And, in due course, it is. All that remains to be decided now is the allocation of shares, which prompts one final round of bartering, and then the new, improved agency can concentrate on preparing as seductive a marriage announcement as possible.
The content of these announcements is fairly standard. Better everything is promised—better service, better creative work, better media buying—and the joining together of the two agencies is presented as the most natural of developments, inspired by the deep admiration that each agency has for the other. Somewhere in the announcement will be a quote along the following lines: “The more we looked into it, the more it made sense to consolidate our abilities and resources so that we could offer a broader range of expertise in today’s increasingly competitive business climate.” It’s simple, harmless stuff, and none but the most gullible would be misled by it for a moment.
The timing of the announcement is not quite so easy. The more important clients will already have been sounded out, but they are not necessarily any more discreet than agency people, and it would be embarrassing if one of them leaked the news prematurely. Ad Age would get hold of it and bellow about merger rumors, the poor ignorant staff would get jittery, the uninformed clients would be upset, and other agencies would be on to them quicker than you could say conflict of interest.
So, in a last-minute frenzy of phone calls and assignations, the news is given out to everyone within one frantic twenty-four-hour period. The staff is told that golden opportunities lie ahead, clients are given the party line, Ad Age is offered a limited exclusive, press releases are sent by messenger to influential journalists, champagne is served in the boardroom, and photographs are taken of the beaming newlyweds.
Then the problems begin. Having declared their intentions, the two agencies have to move in together. Those stark offices aren’t big enough, and so for the time being everyone is jammed into less fashionable accommodations while new premises are found, gutted, and redesigned. The staff is cramped and apprehensive. They know that any day now the “consolidation of resources” will make a good many of them redundant. Friends in other agencies are sounded out in case another job has to be found in a hurry, and uneasy speculation takes up much of the time that used to be devoted to work.
The management, however, is working fourteen hours a day. The merger will not be considered successful unless it is blessed fairly quickly by the arrival of more business, and this is unlikely to happen if too many of the existing clients take exception to the new arrangement and leave. It is a hectic two or three months of keeping one set of masters happy while courting another, and it is not made any easier by the friction within the agency caused by overcrowding and political skirmishes.
The creative people can be counted on to make a meal out of the situation. They find that they can’t concentrate in unfamiliar surroundings. They are not pleased to be reporting to a different creative director, and the executives they are now being asked to work with are, if anything, even worse than the last bunch of idiots. They accuse the management of selling out, of letting creative standards drop, of kissing the client’s ass. They feel slighted, almost betrayed. They mope.
The executives tend to take a more businesslike view, seeing opportunities for advancement in the increased size of the agency. But the creative department, suspicious and touchy though it may be, is not their chief concern. The hand in need of holding at the moment is the client’s hand, because he is definitely feeling a little insecure. He, too, might have been demoted in the merger from being one of the old agency’s big clients to one of the new agency’s medium-sized clients. Is he still going to receive the service and attention that he is used to? Can he look forward to a continuation of his pleasant relationship with the creative director, those unhurried chats about the size of the logo or the soundtrack on the latest commercial? Will there still be those agreeable dinners with the chairman two or three times a year? Will he still be loved?
Yes, yes, says the executive, massaging furiously, of course he will. Clients like him are the backbone of the agency, and together we will grow. Onward and upward! How about lunch next week? (Agency mergers are always wonderful for the restaurant business.) And yet, despite all the protestations of goodwill and confidence, there is a wait-and-see atmosphere. The client may admit it or he may keep it to himself; but he is reserving judgment.
This is not lost on the rest of the advertising industry, and the poachers are sharpening their knives and forks with a vengeance. The months immediately following a merger are assumed, with some justification, to be a period during which stirrings of discontent can be converted to advantage, and it is a rare merger client who doesn’t receive daily offers of food and drink and speculative presentations from agencies he has never met and often never heard of.
Meanwhile, the consolidation of abilities and resources at Merger House is taking place. The unlucky ones are paid off and asked to take their personal effects and hurt feelings elsewhere as quickly as possible. They’re not expected to work out their periods of notice; on the contrary, they’re encouraged not to, since to have people under sentence of death hanging around the agency is considered bad for morale.
For the ones who remain, particularly those who have been rewarded in one way or another, the merger begins to look like quite a good idea, after all. The agency has accelerated off the plateau and up into a different league. There are bigger and better opportunities at every level, and if they can be properly exploited, everyone will benefit. Fame and fortune are just around the corner, and once the agency has settled into its imposing new offices, a lot of the initial friction will disappear. A change of surroundings often works wonders in dispelling the prickly atmosphere of those first uncomfortable weeks.
In the end, most of the clients wait to see how things turn out. They may have misgivings, but their instinct is to stay put. Changing agencies is hard work, time-consuming, and disruptive, and the devil you know is usually preferred over the devil you don’t. Providing the agency is careful to maintain as much continuity as possible and to put on its most enthusiastic face, the misgivings should be forgotten.
The three men have almost pulled it off. The board is not entirely obedient (no board ever is), but the deadwood has been cleared out and the client list hasn’t suffered too badly. The merger has been 90 percent successful; a big piece of new business would add the final 10 percent, and then they can start planning their assault on the Stock Exchange. How difficult can that be? It’s only another variation of the new business pitch.