By Gideon Spanier &
One can’t help wonder, just what the world wide implications will be for the problems at the mothership in the UK. A story that broke late Friday 31 Jan 2020 on serves to add great fuel to the fire that things are not happy at mill back in the Old Dart. M&C are a Global network and the effects cannot help but effect their business globally.
London Friday Jan 31st 2020: The Financial Conduct Authority has begun an investigation into M&C Saatchi following the accounting scandal that was revealed last year.
The advertising group has suffered an exodus of senior leadership, including co-founder Maurice Saatchi, after accounting irregularities prompted an £11.6m “adjustment” in the company’s account over two years.
The company has been struggling with an escalating accounting scandal in the UK arm that has resulted in an £11.6m “adjustment” over two years and a slump in trading, including the loss of the valuable NatWest advertising account.
M&C Saatchi’s share price, which was within touching distance of £4 in March, has collapsed by three-quarters this year, falling as low as 79p last week when the company admitted that the accounting “misstatements” that first emerged in August were worse than expected.
And now the crisis has worsened as Maurice Saatchi, one of the co-founders of M&C Saatchi, has quit in an apparent split with his founding partners David Kershaw, Jeremy Sinclair and Bill Muirhead.
Back in December 2019 a shock announcement to the stock market at 6pm on Tuesday (10 December), Lord Saatchi resigned as an executive director, along with all three of the independent non-executive directors: Sir Michael Peat, Prince Charles’ former private secretary and a former KPMG accountant; Michael Dobbs, a Conservative peer and author of House of Cards; and Lorna Tilbian, a media banker.
The departing directors disagreed over the way forward for the company in the wake of the accounting scandal and whether Kershaw should stay as chief executive.
A source claimed Kershaw offered to resign, but it is thought that M&C Saatchi’s corporate advisors persuaded him to stay for now to avoid further instability.
Kershaw, Sinclair (who is chairman) and Muirhead remain executive directors, but half of the eight-strong board has now left, and events are moving quickly.
The drama has added significance because the four founding partners are some of the most celebrated names in British advertising and have had a close bond for decades.
They set up M&C Saatchi in 1995 along with Maurice’s brother, Charles, who soon stepped back.
Regarding the accounting scandal, sources close to M&C Saatchi maintain there has been no evidence of fraud, but some shareholders are angry about the problems and share price collapse.
Tim Bush, a spokesman for Pirc, a leading corporate governance and shareholder advisory group, says: “These problems did not occur overnight. Aggressive accounting will always run out of road space as the numbers will need to grow.”
M&C Saatchi’s stock market value fell below £100m last week, meaning it is more vulnerable to a takeover or the remaining founders could try to take it private.
Kershaw, who is 65, and Sinclair and Muirhead, who are both 73, own nearly 15% of the company. Saatchi, who is also 73, has about 4.5%.
Tristan Rice, partner at M&A advisory business SI Partners, says some potential buyers may be wary because M&C Saatchi looked like it was outperforming competitors in recent years during a tough period for the agency sector, but that record is now in doubt.
“To a certain extent, they were confounding expectations by saying they were growing strongly year on year, because most conglomerates like Engine were not growing that much,” Rice explains. “It’s not as rosy as it looked.”
The FCA, the government’s financial watchdog, was known to be examining M&C Saatchi since December 2019, but a formal investigation begins proceedings that could lead to a prosecution.
It is thought that the FCA will begin with a fact-finding mission, which could include demanding documents and speaking to senior employees at the business.
As the investigation proceeds, the FCA will form a view about whether further action is needed, such as a fine or a public censure.
Research analysts Peel Hunt described the investigation as “another setback for 2020”, having credited M&C Saatchi for making “good progress” by appointing two strong independent non-executive directors to its board, Gareth Davis and Colin Jones, earlier this week.
M&C Saatchi, a limited company, saw its share price fall 9.5% this morning in early trading. The price fell as low as 93p but has settled to 101p at the time this story was published.
In a statement to investors, M&C Saatchi said: “The FCA has notified M&C Saatchi plc that it has commenced an investigation following the accounting adjustments announced by the company, most recently on 4 December 2019, and following the completion of an independent forensic review commissioned by the board. The company will co-operate fully with the FCA.”
First published in Campaign.