Opinion: News Analysis - Is Ludgate sinking or just swimming with the tide? - In the wake of top financial agency Ludgate Communications’ merger with US sister agency Golin/Harris , PR Week looks at the end of a brand

Last week’s news that the London, New York and Frankfurt offices of Ludgate Communications were being merged into the US sister agency Golin/Harris International has been seen as the death of a once proud PR brand.

Last week’s news that the London, New York and Frankfurt offices of

Ludgate Communications were being merged into the US sister agency

Golin/Harris International has been seen as the death of a once proud PR

brand.



The Ludgate name, which first appeared in 1991, will only live on as an

appendage to the London office - Golin/Harris Ludgate. Yet just a few

years ago Ludgate was a top 15 UK agency and a force to be reckoned with

in its own right. What happened?



Those privy to the Ludgate story say that this conclusion was almost

inevitable when it was sold to advertising and marketing services group

McCann-Erickson in 1997. At the time McCann, itself part of the

Interpublic group of companies, was seeking to build up its PR interests

and put Ludgate under the stewardship of New York-based Weber PR

Worldwide, headed by chairman Larry Weber.



The deal itself was not the problem; rather it was the terms of the deal

that contributed to the rot. McCann’s failure to insist upon substantial

earn-out clauses for key directors left the way open for them to take

the money and run. Acquisitions of this nature often see the inclusion

of earn-outs locking in key personnel for up to three years. In this

case, minor shareholders were free to take the cash on the day it was

signed and the major shareholders, led by Tim Trotter, only had short

lock-in agreements.



The founding shareholders’ gain has proved to be the agency’s loss - the

last three years have been a tale of senior departures: Gay Collins,

Shona Prendergast, Andrew Nicolls and Louise Hatch left in early 1998 to

set up their own agency, Penrose Financial. The list of other senior

departures over the last couple of years makes for sorry reading, and

includes Tim Trotter, Andrew Sharkey, Tony Friend and Nick Boakes.

Within 18 months of the deal all the founding shareholders had left.



Nor has the departure rate slowed. The last few months have seen David

Simpson and Terry Garrett jump ship to Square Mile. And now four senior

staff from Ludgate’s public affairs division have also just announced

their resignations following their failed attempt at an MBO.



Stephen Lock, formerly managing director of the public affairs division,

says that he and his colleagues approached Interpublic about buying the

business. They wanted to run their own company and didn’t feel it was

necessary to be part of the global group.



The public affairs division has been one of Ludgate’s more successful

business groups in the last couple of years and is now being run on a

temporary basis by Peter Sanguinetti, formerly director of corporate

affairs at British Gas. Sanguinetti’s experience should prove

invaluable, but without the presence in particular of litigation PR

specialists Lock and deputy managing director Richard Elsen, it is hard

to see how the practice’s niche in this area, for example, can

continue.



Andrew Sharkey, a founding partner at Ludgate and now a partner at

Luther Pendragon, believes Ludgate’s experience offers lessons to those

looking to acquire PR companies. ’They have to understand the different

motivations of senior and junior people within an organisation so that

you can motivate them all under a new structure.’



In Ludgate’s case the ongoing business was left without the key

personnel who had actually structured the deal. Some may speculate that

they had been working toward a sale and rapidly built the business up in

order to gain the best possible price, leading to questions as to

whether that level of growth was sustainable. If this was indeed the

case, with the deal done and money in pockets the main reason for

staying at Ludgate disappeared.



The effect of relatively short lock-in periods was also compounded by

the financial structure of the sale. Granville, a venture capitalist

company which sold its 27.6 per cent holding in Ludgate to McCann, had

insisted on a higher price to satisfy its own internal rate of

return.



McCann only agreed to this by instituting a clawback from the Ludgate

business over the next four years in the form of an additional

dividend.



This further decreased the chances of growing the business, making

directors more edgy.



Several sources also suggest that a lack of commitment to Ludgate from

Weber PR did not help. ’We were put into bed with Weber and that has not

been a successful relationship,’ says one insider.



So why should Golin/Harris succeed where Weber failed? Robin Hepburn,

Ludgate’s CEO, admits that there have been difficulties over staff

retention and recruitment in the last couple of years but says that is

an issue for all people businesses. He points out that many of the

departing staff have left for smaller companies so they need to

emphasise the positive issues relating to working for a larger business,

such as ease of movement between offices.



He also stresses that talk of the death of the Ludgate brand is a little

premature - although he does acknowledge that the Ludgate name is likely

to be dropped within two years. ’Golin/Harris is wholly supportive of

this business. Those who are predicting its collapse will be

disappointed.



This is a positive message and it provides us with all sorts of

opportunities.’



The success of the Golin/Harris link up should be helped by a number of

factors. Reporting to Mary Bartholomew, managing director of

Golin/Harris in Europe rather than the US, should help, particularly as

both Hepburn and Bartholomew have worked together in the past at

Shandwick. As Hepburn acknowledges, that sort of link is key to a deal’s

success.



This, after all, is a people business.



Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Register
Already registered?
Sign in