BMF and BWM to lead organic growth for Photon

UPDATED: After years of buying up companies, growth via acquisition will no longer be the focus of the debt-ridden Photon Group, which is now seeking organic growth via a combination of growth in the marketing communications sector and ability to increase market share. BMF and BWM are flagged as the two Australian agencies most likely to drive growth in this sector for Photon.

Australia’s largest marketing and communications group, has announced $90m in write-downs as a result of the continued underperformance of its Internet & E-Commerce division. Yesterday’s announcement to the Australian Stock Exchange details a restructure of the group, which will be realigned around three business divisions: Australian agencies, Australian field marketing and international.

It also revealed that with Jeremy Philips stepping in as the new CEO, Tim Hughes will step down as executive chairman from July, but remain on the Photon Board as a non-executive director.

Sitting under the Australian agencies banner will be BMF, BWM, C4 Communications, Be Group, Precinct and CPR. Naked, Frank PR, Hotwire, The Leading Edge and Retail Insight will be part of Agencies International while Bailey Group, Club Sales, DemoPlus, REL, Counterpoint, Ausrep make up the Field Marketing sector. Missing from the agency list is AdPartners, which the AFR’s Neil Shoebridge reports is being folded into BWM. Executives from AdPartners were not available at the time of posting to comment.

“The simplified organisational structure aims to drive greater collaboration around customer needs, improved operational efficiencies and better leverage management expertise,” according to Photon.

The 2010 financial year normalised NPAT (excluding one-off costs and non-cash impairment charges) is expected to be approximately $19m.

Photon is also concerned about its future deferred consideration payments, estimated to be worth approximately $167m. The holding company is currently in confidential discussions with key businesses and individuals still owed the deferred considerations to cap the potential liability and convert some portion of the deferred consideration payments into Photon shares.

In September 2007 Photon bought 100 per cent of BMF in a cash and shares deal worth over $25m with further payments to BMF partners Warren Brown and Matthew Melhuish based on the agency’s performance over the next three years, the end of their contracted period. Last week BMF announced that Melhuish will change his role from CEO to become executive chairman of the agency, focusing on business development for BMF, locally and overseas, and on working with the broader Photon group of companies.

Shoebridge speculates that Melhuish will be named as the new head of the Australian Agencies division. He also suggests Stewart Bailey from the Bailey Group as the new head of the Australian Field Marketing Division and Nigel Long from Naked Communications to be named as head of the international division wtih Naked’s Jon Wilkins to be appointed as business development director.  An announcement will be made later this week.

A year earlier BWM managing partners Rob Belgiovane, Paul Williams and Jamie Mackay (pictured above) sold a 51 per cent stake in the agency to Photon with an option to sell their remaining share to Photon up until July 2012. The deal entailed an upfront cash payment as well as around 1.3 million Photon shares, taking the total purchase price to $13.8m.

Photon’s bank debt as at 30 June 2010 will be approximately $271m. The company has instructed Russell Reynolds to conduct a search for three new additional independent, non-executive directors to appoint to the Photon Board.  It is anticipated that one of the new appointments will become non-executive chairman.  Current non-executive director, Brian Bickmore, has accepted the position of interim chairman until a new chairman can be appointed.