For the directors of M&C Saatchi, wrestling with a major accounting issue – chiefly booking fees too early that’s led to them making a £6.4m provision – it may seem all a bit like déjà vu.
Back in 1995 when the old Saatchi & Saatchi nearly imploded many of the problems were blamed on earn-outs. The agency, then the biggest in the world, had grown by buying agencies and other companies left, right and centre for a downpayment and further performance-based payments. But if many of these become due when overall trading takes a downturn, as it had in the early ’90s, then meeting them is a problem.
M&C was formed by Saatchi directors David Kershaw, Bill Muirhead and Jeremy Sinclair, shortly after joined by Maurice and Charles Saatchi. Maurice is still there. Its model is not so different – it takes majority stakes in newish agencies across the world and therefore there are lots of minority shareholders. The value of these shares is usually based on performance.
In a statement yesterday the company said: “We are determined that our strategy of winning new business by starting new businesses will not be undermined by this, but recognise that having so many young companies in the group requires extra vigilance.”
In short, how much money are these operations actually making?
M&C has launched an independent review and promised to appoint a UK finance director and group treasurer under group CFO Mickey Kalifa, a relatively recent appointment. CEO Kershaw, Muirhead and chairman Sinclair bought £100,000 of shares each yesterday, Kalifa £75,000. The shares appear to have stopped sliding after losing about 20 per cent at one point yesterday. M&C Saatchi is valued at £237m on London’s AIM market.