New Commercial Arts founders show value of a clear agency proposition with WPP deal

They started with a proposition of “uniting brand and customer creativity to make brands more desirable and easier to buy.” When I headed to the NCA website, it was no surprise to me that they’ve stuck to this – “brand communications” and “customer experience” flash up first, followed by “more desirable” and “easier to buy.” They know what they are good at and they do it very, very well.

Having clarity and consistency of offer seems very obvious, but, more often than not, when we at Green Square first spend time with a new client, we find ourselves trying to decipher what they actually do and what sets them apart. There’s no confusion with NCA.

So you can be clear, consistent, creative, award-winning, with happy clients – but can you balance all that with making money? Let’s take a look at how NCA has done.

The average monthly number of employees in its first 10-and-a-half months trading to December 31, 2020, was an impressive 20. Even more impressively, it had amassed £2.49m of cash and made a profit after tax of over £0.5m.

Through 2021, its average number of employees increased to 31, it had turnover of £16.5m, a gross profit of £6.9m and an operating profit of £3.5m (a staggering 51% margin). Cash at the end of that year was a ‘mere’ £5.4m (cash, plus bank term deposits).

Another 20 heads were added in 2022, taking the average for that year to 51. Turnover of £34.2m, gross profit of £10.2m (an increase of nearly 50%), but operating profit was down slightly on the prior year at £3.2m as I suspect it played catch up with investment in operations and infrastructure. Yet the year-end cash position stood at £12.5m – that’s some seriously impressive management of working capital, probably helped by clients paying in advance for production costs (and possibly media).

The average number of employees for 2023 was up by 12 to 63. Turnover dipped a little, but, most importantly, gross profit was up another 25% to £12.7m. And an operating profit of £3.4m. Those of you who haven’t switched off from all these numbers may be saying that their margin has been declining. You’re right, but arguably it is moving towards a more sustainable place with an operating profit margin of 26.7%. And cash … £12.1m.

So, I’d say it has done pretty well.

Another thing it has done pretty well at is building a quality management team and aligning that team through equity. The three initial shareholders may have founded NCA, and I’m sure bring their respective forms of magic dust from time to time, but they’ve put equity into the hands of many others – Murphy and Golding equally share the first £1m of any sale proceeds, six other shareholders join them at differing percentages in the next £39m and there are probably at least 10 more that participate in anything above £40m of sale proceeds.

Given that they were likely to have had a big lump of surplus cash that will have been paid out as part of the deal, I am sure that the £40m mark will have been surpassed and who would bet against the total deal value at the end of their earn-out being greater than the £100m+ that was reportedly achieved by Adam & Eve when they were acquired by DDB?

The parallels with that deal aren’t just financial. When Adam&Eve went to DDB, it was to leverage the energy and entrepreneurialism of Adam&Eve through DDB’s scale – arguably to reinvigorate DDB. Murphy is to become CEO of Ogilvy Group UK…

And I wonder what Sir Martin Sorrell may be thinking. Many moons ago, when he was CEO of WPP, it brought a legal action claiming that Murphy, David Golding and Ben Priest, the founding partners of Adam & Eve, were in breach of contract when they set up the agency – it alleged they approached staff and clients of their former agency, RKCR/Y&R (part of WPP), while still bound by the terms of their gardening leave. WPP won, received an apology an out-of-court settlement.

I think WPP has won again.