Stuart Smith's Blog

I think Greg Delaney deserves some sort of medal, quite possibly an Olympic one. Because he has just proved – beyond all doubt – that he is one of the smartest deal-makers in adland.

Success in building advertising agencies, as with comedy, is about timing. It’s all about knowing when to buy and when, at the top of your game, to sell. The slightly-built chairman of Delaney Lund Knox Warren has demonstrated this quality not once, not twice, but three times in his business career.

First, he was instrumental in the buyout of DLWK (then Delaney Fletcher Bozell) from Bozell Worldwide in 2000, then the acquisition of his agency by marketing services group Creston plc in 2005 for an astonishing £38m. Lastly, post earn-out, he has just engineered a management buy-in at Lowe London which values DLKW at £28m. The cash, stumped up by Lowe’s parent Interpublic, goes into Creston’s coffers. But the fact the new agency is to be known as DLKW Lowe rather than Lowe DLKW, tells you almost everything you need to know about the deal. This is a talented management team (consisting, among others, of joint ceos Tom Knox and Richard Warren) propping up a once-great agency name; tapping into a strong international network; and rewarding themselves, yet again, with a ride on the gravy train (this time with minority stakes in the new agency).

DLKW has never been regarded as one of the most creative agencies, but it has proved one of the best managed. Which is all the more commendable considering its start in life was almost an accident. Most agency breakaways are entirely fueled by their founders’ egos. DLKW’s foundation, by contrast, had more to do with a fortuitous set of circumstances. Bozell, its then network, was being merged and purged with group parent True North’s other arm, FCB. However, the London team would have none of a proposed merger with FCB’s Banks Hoggins O’Shea and, by an astonishing oversight, were allowed to go their own way.

Interpublic shortly afterwards acquired True North; and, as a consequence, a strategic stake in the breakaway agency, which it held on to until Creston bought DLKW lock stock and barrel in 2005. There was irony here. In the shorter term, DLKW proved a thorn in the side to Interpublic by hijacking most of wholly-owned Lowe’s UK General Motors business. In the longer term, however, the stake created a durable rapport and helped open doors when Lowe’s current network chief, Michael Wall, pitched up at Creston with an open cheque book earlier this year (A Wall of money).

Lowe needed to do a deal with someone, no doubt about it. It was that or close down the London office. Rapier and Dye Holloway Murray were also in the frame, but DLKW seems to have been the target, first and foremost. It’s a known, respected quantity and the brands fit.

But, one niggling doubt remains. If DLKW is so all-fired magnificent, why has Creston let it go for £10m less than it paid for it five years ago? At the time of acquisition, DLKW accounted for about half of Creston’s revenues, and even now the figure is roughly a quarter (£19.2m of £80.3m, in the year to March 31). In other words, the agency was, and remains, a major strategic asset.

Creston’s argument is that the money is better deployed elsewhere, in faster-growing assets such as digital. It’s certainly true that advertising is a less dynamic element of the group’s portfolio than, say, healthcare. Indeed, DLKW’s profitability appears to be flat-lining. According to “bottom line” wizard Bob Willott, DLKW group made a post-tax profit of only £1.9m in the last financial year – almost the same figure as that achieved when the agency and its small subsidiaries were first acquired. Above all, however, it seems to have been the flash of cash that did the trick. The £28m payable to Creston on completion is spookily adjacent to its debt pile of £25m. Shareholders were not slow to swallow the implications: Creston’s share price shot up.

Withering on the vine or not, DLKW certainly looks better placed to kick-start itself back into life as part of Interpublic than in the eccentric marketing services portfolio that is Creston. In Lowe, the boys have got themselves a bigger sand-pit to play in. Let’s see what they do with it.