By Arun Sudhaman
SYDNEY: Australian marketing services holding vehicle Photon Group, which owns a string of PR agencies including the UK’s Frank PR and Hotwire, has been forced to restructure its business in a last-ditch bid to stay afloat.
The group is attempting to re-negotiate costly earn-out payments with the founders of some the agencies it has bought in recent years. In the UK, these purchases have included Frank PR and Hotwire.The company today confirmed A$90 million in write-downs related to its internet division, along with a $14 million earnings downgrade this year.
Significantly, Photon has revealed that its forecast earn-out payments, to those people from whom it has bought agencies, is significantly higher than expected.
Photon is attempting to change the terms of these costly earn-outs with agency founders who are due to receive further payments. These are understood to include Frank PR co-founders Graham Goodkind and Andrew Bloch and Hotwire co-founders Kristin Syltevik and Anthony Wilson.
In a trading update, Photon said: “The company estimates total deferred consideration payments to be approximately $176 million.” The majority of this amount is due to be paid over the next 15 months.
The two UK agencies were bought during a 2007 acquisition spree that culminated in Photon’s purchase of highly-rated UK comms planning firm Naked.
According to one source familiar with the situation, many of Photon’s deals at the time included “open-ended, uncapped” earn-outs. “A better a company has done, the more Photon have had to pay,” said the source. “For agencies that have succeeded, Photon has almost become a victim of their own success.”
Photon has said that it has begun “confidential and incomplete” negotiations to try and cap these earn-outs, and exchange some of the cash payments for Photon shares.
The news comes just days before Photon embarks on a drive to raise $200 million in capital, after trading in the company’s shares on the Australian Stock Exchange (ASX) was suspended three weeks ago.
The group has been forced into this position because of the disastrous performance of its internet and e-commerce division, which it has disbanded after writing down $90 million in “non-cash intangible impairment charges”.
The group has also reorganised its structure into three geographic groups. Naked, Frank, Hotwire and Hotwire sister firm SkyWrite will all sit within International. Other PR agencies that Photon owns include City PR, CPR, Kinetics and Mark in Australia, and New Zealand’s Creo.
As part of the reshuffle, Photon Group founder and executive chairman Tim Hughes has stepped down. Photon director Brian Bickmore, instead, becomes non-executive chairman. The group remains led by chief executive Jeremy Philips, the former News Corporation senior executive who took the job earlier this month.
Speaking on behalf of their respective agencies, both Goodkind and Syltevik declined to comment.