A hurdle and a boost – how will they affect M&C Saatchi’s future?

Christine%20Walker%20120x120On the day Christine Walker retired from her eponymous media agency – now 94% owned by M&C Saatchi – the advertising group announced the £18m acquisition of branding consultancy Clear Idea. The unconnected events of last week could each play an important part in the 12-yearold independent network’s future, say observers.

Bob Willott, editor of research newsletter Marketing Services Financial Intelligence, believes the group is overly dependent on Walker Media, the agency Walker founded in 1997 with Phil Georgiadis.

Willott says that figures imply that Walker Media made about £3.8m profit after tax last year, with greater profits expected in 2007, while M&C Saatchi reported a post-tax profit of £2m.

“In essence, Walker Media’s impressive profit growth has been cushioning M&C Saatchi’s poor performance elsewhere,” he adds, although an agency insider claims his figures are flawed.

Furthermore, Walker’s exit will have an “unsettling effect” on the agency and could slow momentum in the coming years, adds Willott. He says the group finds itself at a crossroads, with competitors seeing M&C as a less potent rival than before.

Wins and losses
Two years ago in September, M&C lost its flagship account with BA to Bartle Bogle Hegarty. The loss continues to cast a shadow, externally at least, although wins such as Direct Line, Kingsmill and Lucozade have replaced the billings. Meanwhile, group profits at its direct marketing, PR and media arms are up, and it has seen organic growth in newer markets in Europe.

Such diversification is core to what M&C is doing to offset the weaker margins in traditional advertising and key to the acquisition of Clear Idea, a five-year-old consultancy with offices in London, New York and Amsterdam.

M&C group chief executive David Kershaw says that following the acquisition, more than 50% of the group’s business involves activities other than traditional advertising.

“We want to go for higher growth and margin sectors,” says Kershaw, part of the team that founded the agency under a “brutal simplicity of thought” principle in 1995. “Pressure on making ads is more squeezed than ever. Advertising, which the name Saatchi will always be synonymous with, will always be a big chunk of our business but to protect the group it is absolutely vital to rebalance activities towards high margin activities.” 

It is a smart buy, according to analysts, with Numis Securities media analyst Richard Hitchcock saying it fits with the group’s strategy. “It was a very sensible deal,” he adds, saying the M&C share price has long since been undervalued. “There is a highly experienced management team at the top of the group, which gives us confidence in their abilities.” 

It may be experienced but it is also “top heavy”, according to one industry executive, who questions whether the management team is collectively adding enough value. He also says it makes M&C look like an old-fashioned agency stuck in the 1980s or 1990s.

Turning cons into pros
However, while that could cause problems, M&C may be able to turn it into an advantage. “They are all about ‘connections’,” adds the source. “Perhaps they could become the McKinseys of the communications world.” Consultancies, after all, bring in the all-important higher margins.

Yet for all the buzz, pomp, the increasing share price and overall group margins, some are asking whether the Golden Square agency – the darling of the late 1990s – has lost its lustre. Another ad executive adds: “There seems so little to say. M&C is doing all right, but no more than that. Damning with faint praise? Perhaps.” 

But Kershaw is upbeat. If losing BA has shown him one thing, it is that the business still has its “fighting spirit”. “We raised from the dead 18 months ago,” he says. Brutal simplicity indeed.

Comments

    Leave a comment