M&C Saatchi’s record profits and forecasts put pressure on Vin Murria to increase bid
Moray MacLennan, the chief executive of M&C Saatchi, has announced record 2021 results for the business after his first year in charge and the board has taken the rare step of issuing detailed annual profit forecasts for the next two years.
The listed agency group, which has been facing a takeover bid from AdvancedAdvT, an investment vehicle led by Vin Murria, since January, reported a 15.1% increase in net revenues to £394.6m and a headline pre-tax profit of £27.3m in 2021.
Client wins have included PepsiCo, Whoop and Mondelez and it has expanded or extended relationships with existing clients, including Reckitt, GSK, Lexus, Sonos and the UK government.
M&C Saatchi said momentum had continued in the first three months of 2022 and it issued formal “projections” showing that its annual profit should rise to £31m in 2022 and then £41m in 2023.
The turnaround in fortunes comes after the company was rocked by accounting irregularities and a boardroom exodus in 2019 and the start of the pandemic in 2020.
MacLennan was bullish in an email to staff, seen by Campaign, in which he told them: “These are your results. Your resilience. Your hard work. Your talent. You should be proud, I certainly am. Enjoy. And then let’s go and create even more brilliant solutions for our clients, solve more of the world’s critical problems. And set new records.”
It is highly unusual for a listed company to publish profit forecasts for two years ahead and that appeared to be a clear message to Murria and Advanced AdvT, who control about 22% of M&C Saatchi.
The independent directors of M&C Saatchi have consistently said that the offer from Murria, who is the top shareholder in M&C Saatchi and deputy non-executive chair of the agency group, undervalues the business, and the company is already making good progress in its turnaround strategy.
“These [2022 and 2023 profit] forecasts evidence the future potential of the business, comprising expected revenue growth from existing clients and new client wins, coupled with further simplification under the accelerated company strategy,” the company told investors.
M&C Saatchi’s auditors, BDO, and financial advisers, Numis and Liberum, approved the 2022 forecast and the agency group had dispensation to forecast its 2023 results under the Takeover Code, the UK’s stock market rules.
Advanced AdvT is offering a mix of its own shares and some cash to M&C Saatchi shareholders. The exact price depends on Advanced AdvT’s own share price, which has declined in recent months, partly because of global economic concerns.
At one stage, Advanced AdvT’s offer was worth about 220p per M&C Saatchi share. However, M&C Saatchi pointed out earlier this week that the “current implied offer price” had slipped to 191.2p or 183.1p – depending on the exact mix of Advanced AdvT shares and cash on offer.
Advanced AdvT initially bought into M&C Saatchi at 200p a share in January 2022, immediately ahead of its takeover approach, and must offer at least that price under the takeover rules.
A spokesperson for Advanced AdvT declined any comment, including about the likelihood that it will have to increase its offer, when Campaign asked.
Twelve-day deadline to conclude takeover
M&C Saatchi and Murria’s team have been locked in takeover discussions since the start of the year – with Advanced AdvT asking repeatedly for time extensions, initially for 30 days at a time.
Most recently, on 28 April, Advanced AdvT asked for only a further 12 days until 5pm on 10 May, which suggests it believes a final decision about the takeover is imminent.
M&C Saatchi’s board has raised various concerns about Advanced AdvT’s bid, arguing the agency group already has restructured and has an effective growth strategy in place and a takeover could lead to a talent exodus.
Advanced AdvT has said M&C Saatchi needs to invest more in digital, data and analytics and should use M&A to grow faster.
As part of M&C Saatchi’s investor presentation for its annual results, it showed that the company still has significant potential liabilities because of put options for agency entrepreneurs who run local subsidiaries and are entitled to shares.
If the share price were 190p, M&C Saatchi said the put options that are “potentially payable” in cash would cost £46m by 2028 but if the price rose to 300p, the potential payout would rise to £67m in six years’ time.
Advanced AdvT previously said its takeover would “enable M&C to resolve the legacy put option issue as well as providing the cash to accelerate investment in the business and transformational digital-led M&A”.
M&C Saatchi pointed out in its results that its “strong trading performance has further strengthened the group’s cash position”, with £34m of net cash, which means it has “the balance sheet flexibility to settle put option liabilities as they fall due in 2022, resume the payment of dividends and to continue the delivery of the group’s accelerated growth strategy”.
M&C Saatchi’s share price rose about 7% to 192.6p in early trading on the results – an apparent sign that investors remain uncertain about whether the takeover will happen.