• The founders of Character, a branding and design agency that sold to Dentsu International in 2018, allege in an arbitration claim that the advertising company may owe them as much as $82.4 million.
  • The Silicon Valley agency had major clients including Instagram, Google, and DoorDash, and Dentsu positioned its acquisition as key to expanding its consulting practice.
  • Character's founders allege that Dentsu violated the terms of its contract, depriving them of all earnouts beyond the initial $17.6 million upfront purchase.
  • A Dentsu spokeswoman declined to comment, saying the arbitration is confidential. Character and its law firm did not respond to requests for comment.
  • Visit Business Insider's homepage for more stories.

The founders of a Silicon Valley design and branding agency acquired by Dentsu International in 2018 allege in an arbitration filing that the advertising company may owe them up to $82.4 million.

Character was founded in 1999 and had Nike, Amazon, Netflix and DoorDash among its clients. Character brought in $9.3 million in revenue in 2017.

At the time of the acquisition, Dentsu said Character would be key to expanding its consulting practice. 

Read more: Advertising giant Dentsu just announced huge job cuts. Insiders are speculating about how they'll play out and the growing influence of data agency Merkle.

Character founders Oliver Ralph, Benjamin Pham, Patricia Evangelista, and Rishi Shourie allege in the arbitration claim filed with a New York court in September that Dentsu neglected to help their agency grow as promised by the acquisition agreement and that they had "in essence been left alone on an island."

The arbitration claim includes a copy of the original sales agreement between the two companies that called for an upfront payment of $17.6 million to the founders, followed by a "top-up payment" and five earnouts based on Character's growth and profitability.

The maximum possible payment under the agreement was $100 million, depending on how Character performed through 2022, according to the sales agreement.

The claim alleges that Dentsu called Character's financials "unreliable" and "unauditable" and later delayed and denied payment. It alleges Dentsu initially offered the principals a $3.6 million earnout in 2019 but later backtracked, claiming that they were entitled to nothing.

According to the claim, Dentsu cycled Character through five holding company executives assigned to help the agency grow but that they knew little about the business and provided little to no support.

The claim also alleges that Dentsu encouraged Character to open a New York office, then left Character's principals to pay for the office themselves, hindering their ability to grow their profits and increase their earnouts.

Dentsu sued in September to halt the arbitration and included the founders' allegations as evidence. The court ordered the arbitration claim sealed, but Business Insider was able to obtain it when it was temporarily available.

Dentsu argued in court filings that it had not made any contractual commitment to refer business to Character or to support the development of its New York office. It said an accountant, not an arbitrator, should be charged with resolving the earnout disputes.

A Dentsu spokeswoman declined to comment for this article, saying the arbitration process is confidential. Character's founders and law firm Reed Smith did not respond to requests for comment.

Yoonji Han contributed reporting.

Source: Read Full Article