EDITORIAL: Cash upfront in Lexis MBO deal

This week saw the third major consumer agency execute an MBO in 12 months. Following the Freud Communications buy-back from AMV and the Consolidated Communications MBO last June, the actions of Lexis PR's board have settled the status of the final major indie consumer shop.

The rationale for the £5m deal seems flawless, since neither of the founders, Bill Jones and Tim Adams - who between them owned 90 per cent of the equity - was happy with a major marketing services group owning the firm they created.

There are degrees of preservation with any trade sale. Nobody could argue the culture of, say, The Red Consultancy, has been undermined by its sale to Incepta. But when brand tension arises between an acquiring global name and an acquired local one, the international operator will always triumph. Whatever Charles Barker stood for before a slew of transactions shifted its ownership over the past decade, it means nothing now.

The culture of most PR firms is so crucial to their founders they would rather take a lower price for selling to their own staff than they would expect if WPP or Chime came knocking. While this may be spun as an impressive display of selflessness by the original owners, there is a commercial - as well as moral - upside to the MBO route.

Apart from anything else, the listed groups have spent years perfecting mechanisms for paying their acquisition target as little as possible, paying it at the back end of a long earnout, and paying as much of it as they can in free shares. An eager board of heavily indebted agency loyalists pay cash, and they pay it upfront.

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