Karma Communications, which owns agency Karmarama among others, has posted a £10.9m annual loss according to my friend Bob Willott’s Marketing Services Financial Intelligence.
Bob, who knows much more about these things than I do, says this is partly due to writing off £5.4m of the ‘goodwill’ element of the sum (reported at the time of up to £9m) Karma paid for Hicklin Slade & Partners in 2012. Hicklin Slade trades as Crayon, described as a digital communications agency.
Hicklin Slade has a somewhat chequered history. In 2007 its finance director was jailed for five years for defrauding the company of £2m. The money was spent on eight properties in Essex and vintage sports cars, among other goodies.
At the same time Karma chairman Charles Watson is exiting to join an outfit called Teneo. Teneo seems to be a consulting firm. Watson is a former boss of PR firm Financial Dynamics.
Founder David Buonaguidi quit in 2014 after 14 years, saying he was frustrated by creative standards in the industry (or the lack of them) and the prevailing ‘Mad Men’ culture.
High-profile CEO Nicola Mendelsohn left in 2013 to be EMEA boss of Facebook. She was replaced, more or less, by Naked founder Jon Wilkins who became executive chairman of Karmarama.
And this year the agency lost its place on the BBC’s ad roster after an indifferent year in 2014 which saw it lose its biggest account, £45m B&Q, to WCRS. It subsequently won Iceland.
Mini-marcoms companies sprout like daffodils in the spring but not many of them make the jump to become substantial operations. Often they run out of money along this hazardous path, usually by overpaying for acquisitions which turn out to be less profitable than they thought. Three years ago Media Square was sold in a pre-pack deal after incurring losses of £30m despite an experienced management line-up headed by Roger Parry and assets including Dave Trott’s agency csttg.
Karma Communications is backed by Phoenix Equity Partners, which installed Watson as chairman. As Bob Willott points out, writing off goodwill, even £5.4m of it, doesn’t mean the cash has actually drained through the floorboards. But it doesn’t help the balance sheet and that makes banks twitchy.
It will be interesting to see if Karma Communications, and its prize asset Karmarama, remains independent in a few months’ time.