Can the old-timers keep up?

As M&C Saatchi and Google head for flotation, do Maurice and Charles still have what it takes to interest investors?

Two flotations on the publicly listed equities markets demonstrate the differences between life before and life after the global downturn for the marketing services industry, investor relations and the equities markets.

The arrival of ad agency M&C Saatchi on the Alternative Investment Market (AIM) resonates with echoes of days gone by. Meanwhile, in the US, the initial public offering (IPO) of shares in internet search engine Google signals the shape of things to come.

It’s not immediately clear why the Saatchi brothers have turned the escape capsule in which they fled the Stock Exchange in 1995 back to the capital markets. Can they be pursuing the kind of expansionist policy abroad that got them into trouble in the first place?

I can recall the Saatchis planning a takeover bid for the Midland Bank in the Eighties in a strategy that displayed, despite its ultimate failure, an impressive display of ambition. But the combination of too many acquisitions and the brothers’ strange mix of autocracy and disengagement led institutional investors to lose patience with them by the mid-Nineties.

The relationship between City investors and the brothers took a critical downturn after Saatchi & Saatchi’s extravagant spending habits – famously, the brothers’ bill for fresh flowers – were exposed. But while the listed company they had built was eventually swallowed up by Publicis, Maurice and Charles branched out to form M&C Saatchi, which has done very nicely off the back of faithful clients.

Now they’re back on the stock market. And it looks as though Maurice and Charles have, like a scene from The Magnificent Seven, put together a collection of old faithfuls for one last, great fling. Except this time, they’re a Famous Five. And neither Maurice nor Charles is leading – indeed, the fact that neither of them turned up for the investor roadshows last week has attracted a fair degree of comment.

Chief executive David Kershaw is heading the flotation, while two other M&C Saatchi founders, Bill Muirhead and Jeremy Sinclair, will look after new business and creativity, respectively.

Meanwhile, Maurice’s time will be spent running an allegedly resurgent Conservative Party, while Charles attempts to rise, phoenix-like, from the ashes of his art collection.

So, as far as their attention to the business goes, it’s not immediately apparent how the brothers will convince the City that things are going to be different this time.

But what of strategy? Kershaw has let it be known that he and his fellow brothers-in-arms are accessing the capital markets for entirely different reasons than the acquisitive excess that marked the Saatchis’ last exposure to public money.

This time, the idea is to build up a network of European offices by encouraging local staff to buy equity in the company, rather than by acquiring through debt and watching the talent disappear.

Okay, but it’s still the same corporate offer, isn’t it? With the same people in charge? I don’t think I’m being unduly cynical here; the City seems to have adopted much the same frame of mind.

After a somewhat anti-climactic delay to the flotation last Friday, M&C Saatchi’s shares were placed at 125p – well below the range of 143p-164p punted at the roadshows last week. That values the company at &£67.8m, a somewhat modest multiple of a turnover that stands at about &£60m. As matters stand, investors aren’t buying the story and have yet to be convinced that this isn’t about retirement plans.

But more important than that is the changing nature of the marketing services markets, their relationship with clients, and the changing role of traditional professional services functions.

Google is a paradigm for the shifting nature of communications and the media that serve clients. Its IPO is expected to value the company at $2.7bn (&£1.5bn). And the very manner in which Google is being marketed to investors demonstrates the changing world of capital markets and the way they communicate.

The company will effectively be floated on the internet by auction, through which banks and brokers will accept orders. And demand for the shares is expected to be intense.

The difference is that Google is about connectivity, while M&C Saatchi still talks of “relationships”. Clients such as British Airways and Dixons may still buy advertising strategies that have been thrashed out over the tables of Chinatown, Le Caprice or The Ivy, but the flotation of Google shows the Saatchis that they have an entirely new market architecture to address. The City will be wondering if they can do so.

George Pitcher is a partner at communications management consultancy Luther Pendragon


    Leave a comment