Envoy Communications Group last week purchased for $85.8 million Leagas Delaney, a London hot shop that has opened other offices in Europe and San Francisco to accommodate a growing international business, as its entree into new markets. Leagas Delaney's biggest international client is Adidas.
Envoy claims that the purchase of Leagas will double the size of the Envoy group holding company to annual billings of $500 million. Envoy is making an initial payment to Leagas Delaney of about $36 million, including about $13 million in stock. The remaining portion is payable over four years and is subject to meeting performance targets.
The purchase gives Envoy a third ad agency after Communique, Toronto, and its recently acquired Hampel/Stefanides, New
York. Envoy also owns shops in the tech area, along with the Watt Group, a retail design division with seven offices in North America and Europe. Watt works with Wal-Mart Stores internationally.
`VERY SMALL IN ADVERTISING'
Envoy is "very small in advertising and [its] main business is digital and retail systems," said Tim Delaney, CEO and creative director at Leagas Delaney. "We dovetail with that. We become the third circle, brand communications."
"We're going to have three core disciplines: technology, marketing or advertising -- if you want to call it that for simplicity -- and design, that are all going to be working together and will all be international in scope," said Geoff Genovese, Envoy's president-CEO. "It's the first time in Canada that I'm aware of that we've got the head office of an international marketing services or communications group."
Envoy hopes the Leagas Delaney deal will help fix Envoy's ailing Canadian ad agency, Communique. Envoy parted with Communique President-Creative Director Chris Stavenjord in October following poor agency performance, including the loss of key accounts Microsoft Corp. and Toshiba.
Mr. Genovese said Communique will be renamed Leagas Delaney and will report to London. He is also counting on the appeal of Leagas Delaney's name in creative circles to help him replace Mr. Stavenjord.
"I think what Leagas has been able to do is attract the top talent in whatever city they open up," he said. "And we've got, I can't tell you the number of the voice mails, the resumes, the e-mails, the books, from Canada's biggest and brightest that want to be part of Leagas Delaney."
Envoy's first international foray was the acquisition last year of Hampel/Stefanides. That shop's president, Brian Goodall, said Hampel will not take the Leagas Delaney name and that there will be "no changes whatsoever."
Envoy hired Merrill Lynch & Co. to oversee its global acquisition strategy, helping to identify and negotiate international deals and arrange financing. The company got a listing on the Toronto Stock Exchange three years ago.
"I really believe we can continue the kind of 100% a year growth that we've had in the past," Mr. Genovese said. "The fact that Merrill Lynch globally has taken us on and are working with us, and will lead the financing for us that we're working on at this moment [means] they believe in the story."
Mr. Delaney said his agency hired KPMG to help figure out its future. Until now, Leagas Delaney has been fiercely independent. Started in 1980, the agency was bought in 1986 by London agency Abbott Mead Vickers BBDO. When BBDO Worldwide turned a minority stake in Abbott Mead into full ownership in 1998, Leagas Delaney management bought the agency back.
For future expansion, Mr. Delaney is looking at Spain and the Far East.
"We feel we've done a good deal financially -- now we can use the capital markets to grow our business -- but also we own influence" at Envoy, he said. "We have a lot of stock and own a big chunk of the company, and they're good guys. We haven't sold to a puppeteer."
Mr. Delaney said he got an e-mail from Martin Sorrell, WPP Group's chief executive, congratulating him on doing a deal that "sounds perfect for you."
Leagas Delaney has a staff of 300 in London, San Francisco, Rome, Paris and Hamburg. In the U.K., the agency is the 25th largest, with gross income of $22 million on 1999 billings of $147 million.
The agency is best known for its work for Adidas, based on global concepts developed from London. Other major clients include Goodyear Tire & Rubber Co. and Lycos in Europe, Barclays Bank in the U.K. and Telecom Italia in Italy. The Rome agency -- run by Managing Director Micky Delaney, who is Mr. Delaney's sister -- developed a high profile campaign this year for Telecom Italia with well-known figures like Nelson Mandela and Woody Allen talking about technology and what it means in their lives.
In San Francisco, Leagas Delaney has lost a number of pitches lately and suffered from dot-com budgets drying up, but last week won the estimated $30 million account for ReplayTV, a marketer of personal digital video recorders, previously at Publicis & Hal Riney.
"With all the mergers of the top six or seven or eight big holding companies and so on, there's a lot of opportunity out there I think for a really bright entrepreneurial, strategic [company] with leading edge technology and leading edge creative for international accounts," said Mr. Genovese.
BOOST FOR S.F. OFFICE
The Envoy connection may also be a boost for Leagas. Leagas' San Francisco office is a finalist in the $50 million to $90 million review for Virgin Mobile USA account. Courtney Buechert, managing director, said the Canadian company offers Leagas the opportunity to be part of "the next generation of brand marketing." He said the Envoy collection of shops allows his agency to tap into resources it would have taken years to build. For example, he said of Sage Technology, which builds and manages e-commerce solutions and intranets, "I could use them tomorrow."
One executive familiar with the situation noted Leagas constitutes about 50% of the Canadian chain, a situation which gives the company more leverage than if it were acquired by a larger company, such as an Omnicom Group. "If they had gone to Omnicom, they would have been another little shiny bauble on the charm bracelet," the executive said.