MSQ rises from the ashes of Media Square in pre-pack MBO deal

Hardly had AIM-listed Media Square gone into administration than it re-emerged phoenix-like as MSQ Partners, consisting largely of the same people and companies but with less debt.

It looks as though Lloyds Bank (41 per cent owned by you and me) has agreed to write of all or most of the £21.5m it was owed in return for a stake in the new company. Creditors are owed about £10m.

These so-called ‘pre-packaged’ administrations (where the new company is arranged before the old one actually bites the dust) are always controversial but popular these days, even with creditor banks who retain an investment in something or other.

Media Square, which owns a gaggle of PR, advertising, research and digital businesses including Dave Trott’s agency csttg, hit big trouble when it bought many of its current businesses from Lord Chadlington’s Huntsworth PR firm in 2005 for £63m, which was clearly far more than they were actually worth.

MSQ’s turnover will be about £45m with 650 staff and half a dozen or so offices around the world. There was clearly no way the old Media Square could continue with debts amounting to about 70 per cent of turnover.

MSQ founder Peter Reid says: “This is an extremely positive development for our staff, clients and suppliers. The deal provides a platform for the group to build on the significant progress made by its agencies at an operating level over the past two years, in particular. The debt burden of Media Square was holding back these businesses and as part of the transaction a much more appropriate and sustainable financial structure has been implemented within the group.

“An employee-owned structure where the employees take the majority control and can share in the future success of the business is one that we believe will see our agencies realise their full potential.”

Well let’s hope he’s right (speaking as a shareholder taxpayer). There must still be doubt as to whether any of the businesses within the new MSQ have the firepower to drive a marcoms company. And there may be other deals on the way. A cleaned-up MSQ could be attractive for one of its larger rivals, like WPP.

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About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.