Arun Sudhaman 29 Feb 2012 // 12:18PM GMT
Famously affable, Lord Bell is not the type to betray any dissatisfaction with the quality of his life. Which makes the news that he is considering a buyout of Bell Pottinger somewhat surprising. Unlike Matthew Freud’s well-publicised MBO one year ago, any discontent that Bell feels with the current state of affairs has remained below the radar. Yet Bell’s decision fits an increasingly well-defined pattern. In addition to Freud, there have been MBOs from a spate of publicly-listed firms over the past 18 months. It is a trend that we have examined in some detail, one that has developed as independent firms consistently out-perform their listed rivals. If capital markets find it easy to value agency business models in general, and public relations firms in particular, they have done a good job of demonstrating the opposite. Underperforming public vehicles also help explain why firms seem more interested in tapping private sources of funding. Then there are the restrictions that entrepreneurial types are likely to chafe against. In the independent world, much is made of the flexibility where profitability is concerned. By the same token, I have lost count of the number of agency heads at listed groups who have bemoaned the fixation on high margins, and the inability to invest amid tough economic conditions. Similarly unappealing is the need to consistently justify business decisions to a sceptical City audience. [For a rather more erudite overview of the public vs private agency quandary, please read Chris Lewis' excellent column on our website.] It should not be overlooked that news of Bell’s plans leaked on the same day that his fellow peer Lord Chadlington reported a restructuring charge of £3m at Huntsworth Group, after revealing a £4m shortfall in profits last year. The focus on cost-cutting is not unique to Huntsworth; Chime faced a similar situation when the US government ended a key Bell Pottinger contract in 2011, and responded in a similar fashion to Huntsworth. That may have been a bitter pill to swallow, particularly as profits from Bell Pottinger’s “geo-political work” have proved instrumental in bankrolling the holding group. There has been plenty of speculation as to which parts of Bell Pottinger group Lord Bell is likely to acquire. One clue comes from the recent decision to axe consumer brand Resonate in favour of Bell Pottinger Consumer. At the time, it seemed curious that the group was effectively replacing an offering of two consumer PR brands (Resonate and Good Relations) with a similar dual-brand format (Bell Pottinger Consumer and Good Relations). If Bell is interested in acquiring the Bell Pottinger-branded units, that decision starts to make plenty of sense, providing a consumer capability to go with the corporate and public affairs practices. The slowdown in growth at Bell Pottinger, along with the well-publicised Independent sting, has led some to question whether Chime might actually prefer a scenario in which it can jettison its ties to public relations and focus on advertising, research and sports marketing. Despite the good growth prospects that the PR industry possesses, there may be some truth to this. Indeed, the existing tacit division of oversight between Lord Bell and Chime CEO Chris Satterthwaite suggests that such an outcome is hardly fanciful. Perhaps Bell’s dramatic move is a little less surprising than it first appeared.