Why investors see M&C Saatchi as the linchpin of a new data and digital agency empire
Now it's confirmed that creative shop M&C Saatchi may be changing hands, we explore why the agency’s potential acquirers are interested in the business.
M&C Saatchi is the target of a merger bid from a software investor
M&C Saatchi is the subject of a potential merger bid, it was confirmed today (7 January). AdvancedAdvT Limited, an acquisition vehicle chaired by investor Vin Murria, who is already a non-executive director at M&C, announced its ambitions for a share exchange merger between itself and the agency.
In a statement released Friday morning, AdvancedAdvT said it ”confirms it is interested in exploring a share exchange merger between M&C and the Company.”
Later that same day, M&C Saatchi's board effectively rejected the proposal, saying that it "does not reflect the value of the business and its future prospects."
What has happened?
Stock market observers were alerted to a potential deal yesterday, when AdvancedAdvT snapped up a 9.8% stake in the agency. Between the shares already held personally by Murria, and shares bought recently by AdvancedAdvT, the potential acquirers now hold a 22.28% stake in M&C Saatchi. Murria, who previously founded Advanced Computer Software and Computer Software Group, is the company’s biggest single shareholder. M&C’s share price rose on the news, closing 19% higher than its position the previous day – the highest position in three years.
On Friday 7 January, M&C Saatchi's board released a statement outlining a potential bid – which would swap out existing shareholders' stock in the company in exchange for shares in AdvancedAdvT, pending a recommendation from M&C's indepdendent directors.
The board said that proposal "does not articulate an alternative strategy for the benefit of the Company's stakeholders beyond an initial change of control of M&C Saatchi." In a statement released on the Group's investor website, it said the bid did not recognize the true value of the firm or its prospects, and that Murria's ambitions were counter to the strategy it's currently pursuing.
The London-based agency was founded by Maurice and Charles Saatchi in the nineties after a split from Saatchi & Saatchi, now owned by Publicis Groupe. But accounting discrepancies revealed in 2019 hit the business hard, costing it over £6m in charges and the departure of directors including Maurice Saatchi and Tory peer Michael Dobbs; the subsequent hit to its share price allowed Murria to acquire a 12.46% chunk of the firm in April 2020.
Since then, the agency has recovered under the leadership of Moray MacLennan, reporting a like-for-like revenue increase of 21% in its latest interim results and closing around 20 of its operations around the world. The company said last year ”represented a key turning point for the Group.”
Lucinda Peniston-Baines, managing partner of consultancy Observatory International, explains: ”M&C has had a pretty tough couple of years with the accounting scandal, but it did feel as though MacLennan had steadied the ship. Just before Christmas they were talking about pretty positive trading results, they made a lot of new hires around strategic leadership and new creative hires. It felt as though they were starting to get off the back foot.”
2021's strong business performance was one of the reasons the company's board rejected Murria's initial approach on Friday 7. Its statement read: "M&C Saatchi's current strategy has been in place since Q1 2021, and has resulted in a number of positive trading updates. Meaningful new client wins include Uber, Google, Tiktok and Tinder as well as new assignments from existing clients including the UK Government, Pepsico, Reckitt and Lexus."
Why does Vin Murria want to buy M&C Saatchi?
AdvancedAdvT said ”a merger would create an opportunity to build a data, analytics and digitally focussed creative marketing business with a strong balance sheet and additional management expertise in transforming businesses at pace and execute on complementary M&A.”
According to Peniston-Baines, ”there is a logic to Murria seeing an opportunity to invest and bolster the data and analytics piece off the back of a relatively well known group”.
”M&C has been a highly creative business... but what they haven’t been known for is a really strong data business. If you think about WPP and Accenture who've made big acquisitions in that space over the last few years, M&C hasn’t got anything in that league,” she says.
Through additional ”strategic and bolt-on acquisitions”, AdvancedAdvT said it hopes to capitalize on the enormous demand among clients for digital transformation, data services and creative – with M&C Saatchi at the center.
The statement continued: ”Other digital marketing groups have been successful in using M&A to acquire digital capability. We see a significant opportunity for the enlarged group, with an accelerated data, analytics and digital strategy and combined stewardship, to achieve similar valuation multiples.”
Even with an additional focus on assembling digital and data capabilities, the new owners of the company would have to work hard to keep its reputation as a creative powerhouse intact.
Peniston-Baines says: ”Maintaining a creative legacy while trying to transform into a much more digital and data led business... is an ongoing struggle for many agencies.”
Any merger bid may still take time to materialize. In a statement issued yesterday, M&C says a formal offer has not yet been tabled. The agency advised shareholders to take no action in the interim.
This article was updated at 4.50pm (GMT) on Friday 7.