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Thomas Heilmann, CEO of Scholz & Friends, about the postponed IPO of the Commarco Holding

Is Commarco going public, Mr Heilmann? We've been saying that's a good option for us for a long time now - but not in the immediate future. Everyone who reads the financial press knows that the markets are very volatile at present. And there's no reason to expose Commarco to any risks.

Does this mean that the decision to go public has already been taken but the IPO postponed? No, because other options exist. With Cognetas as our majority shareholder we have plenty of time to examine all the available options carefully.
 
Then why is an IPO being discussed now? Was someone trying to kill it with a premature disclosure? No. The reason is quite simple. We are now being advised by Morgan Stanley and the switch has brought the topic into the public eye. You see, investment bankers have their own specialist journals for which a change of account is news. Readers of this item drew all kinds of conclusions.
 
Are you really saying that Morgan Stanley went around bragging about getting the Commarco account? Bankers are not normally as talkative as advertising agencies. Morgan Stanley certainly said nothing. It may have been one of the banks which failed to get the account. Compared with investment bankers, the advertising sector is like a discreet English club. Just look at the daily round of press reports on the IPO of the Hamburg Port Authority.
 
Just how probable is it then that Commarco will go public - if not now, then at a later date? All options are open. We've taken another look at the IPO option and come to the conclusion that it is basically feasible. So the answer is that we may go public - sooner, later or not at all.
 
What story are you planning to tell the analysts in the event of an IPO? The truth. For the last six years we have been following a leitmotif which has convinced our shareholders and, more importantly, our clients. It has four target parameters: International presence - the only German network able to claim this. Creativity - we have been one of Germany's most creative agencies for the last 20 years. Strategic competence and orchestration. Integrated communication - various surveys have shown that we lead the field here. That is why our growth record is better than that of our competitors and this makes us potentially very attractive to investors.
 
It doesn't seem likely that the stock market is going to be very interested in whether or not a group is from Germany. And every agency network is going to claim creativity and integrated communication these days. Objection! Investors like to be able to decide the regional mix themselves. One of our plus points is that our revenues come mainly from Germany. Investors generally prefer to acquire a broad portfolio of shares rather than putting all their money into a single share. As far as your second statement is concerned, all networks naturally claim that they are creative and well integrated, but the important thing is not just what range of services a group can offer, but also whether its agencies work together harmoniously.
 
And that functions better with you than at WPP, Omnicom, Publicis und Co? You've got to be joking. At least we are growing faster than those groups, and we attribute that to better integration. As long as the big parent companies keep on running the individual functions as profit centres, the responsible managers are going to put the interests of their function ahead of the interests of the group as a whole. And that puts a damper on integration. Last year we won awards for all the functions offered by our network. Not everybody can make that claim.
 
Assuming that Commarco goes public in 2008, who is going to actually buy the shares? Our focus is mainly on institutional investors, and not on the general public. Ours will certainly not be a people's share.
 
Apart from an IPO, what other exit options could be attractive to your majority shareholder? A so-called secondary buyout, for example. That would mean acquisition by a new private financial investor. One could also look for a long-term, dividend-oriented investor. Another option would be one of the other communication holding companies that is interested in acquiring an additional network.
 
Another theoretical option would, of course, be to buy back the shares yourselves. Which of these alternatives is your personal preference? They all have some attractive aspects. It all depends on a whole raft of details and in the final analysis on whether it will be beneficial to quality and to our clients? There is no right or wrong staff solution.
 
Let me put it another way. Which option would be financially most attractive to the present management? A cheap buyback would be good for you, wouldn't it? My duty as CEO is to find a solution that is good for both the company and its clients. It would certainly be possible to consider buying back the shares privately if Jürgen Scholz were still the majority shareholder, but that is no longer the case. His shares went to Ted Bates twenty years ago and from there via Cordiant to Cognetas, a private equity company. We can either stay there or switch to public equity.

Commarco has basically only existed on paper to date. Its only business of any significance has been done by S&F and GKK. Where does it go from here? Don't forget deepblue networks and Lowe Deutschland. Commarco's revenues are already twice as high as those of S&F alone. Over 50% of our revenues come from non-classic advertising. Commarco's role is that of a typical financial holding company - neutral and non-operational. The aim is to achieve optimal growth in the individual agencies.
 
In order to offer a comprehensive service, doesn't the group need a competitive media facility? Not necessarily, because the individual agencies have been practising channel planning for years now. But I wouldn't exclude the possibility that we may acquire our own facility in this area at some time in the future. We first want to see the outcome of the present controversy between clients, media and media agencies over the future shape of their work together.
 
What about acquisitions in other areas? You have allegedly been on the lookout for another classic agency for some time now. There's nothing to report there. We are constantly looking at agencies. And agencies are regularly being offered to us. But we are not close to cutting any deals right now. But an agency that is thinking about selling out to WPP or Omnicom now has a genuine alternative option.
 
Lowe Deutschland joined Commarco as a new brand at the beginning of this year. How has this agency performed? Very satisfactorily.
 
But one doesn't hear anything about it. Its main activity during the initial phase was an offer to Unilever. They are very much aware of it, and I think I can say that the people at Unilever are very satisfied. There have been a lot of improvements.
 
But not in Lowe's advertising. To be honest, there have been no dramatic changes there. The campaigns are going very well. And there's something in the pipeline as well. But we don't want to count our chickens before they are hatched.
 
And how well is the international cooperation with the Lowe network functioning? Super. We are working closely together in the USA, England, Spain and the Benelux countries.

But the public is not getting much wind of this satisfactory trend, either. That is being directed at international clients. For some clients we are – in the same way as BBH – a global lead team. The cooperation arrangements with the Lowe network enable us to offer a global service. We have already been invited to four international pitches this year. That was new. Although not well-known in Germany, Lowe is one of the most creative networks at global level.
 
So you are claiming that your strategy is paying off. Can you back that up with figures? I have been here for 18 years. My colleagues and I have been managing the group for the last six years, during which we have more than doubled revenues. Organically, we are growing faster than any of our listed competitors. And our margin is roughly at the same level as those of our top competitors. This sort of progress has only been possible because of the steady improvement in the services we have been able to offer to our clients – in terms of creativity and orchestration across all available channels. That is, in my opinion, a record of which we can be quite proud.

And what results do you expect to report for the current year? We will once again be reporting double-digit growth.

Interview: Mehrdad Amirkhizi