M&C Saatchi boosted as FCA drops accounting investigation

UK regulators have dropped an accounting investigation into M&C Saatchi, strengthening the advertising company’s hand as it faces a possible takeover by tech entrepreneur Vin Murria.

The London-listed company, known for its work on Conservative party election campaigns, had been pushed into its greatest crisis since it was founded in 1995 after the Financial Conduct Authority opened a probe into its bookkeeping about two years ago.

In a trading statement on Friday, M&C Saatchi said the FCA had ended its investigation and no enforcement was being taken against it. The company also said pre-tax profits for 2021 would be better than expected thanks to new client contracts, the latest sign that the industry is rebounding from the depths of the pandemic.

The long-awaited end of the regulatory probe should help draw a line under an uncomfortable episode for the company founded by Maurice and Charles Saatchi, who built it into one of the UK’s most respected advertising networks.

Together with the upbeat trading statement, it should give the board more ammunition to fend off a takeover approach made this month by AdvancedAdvT, a cash shell run by Murria.

She is M&C Saatchi’s biggest shareholder with a 12.5 per cent stake, having acquired beaten-down stock after the accounting scandal came to light, and is also its deputy chair. AdvancedAdvT holds a further 9.8 per cent.

Independent directors of the board, chaired by former Imperial Tobacco chief Gareth Davis, have said that the all-stock proposal “does not reflect the value of the business and its future prospects”.

The update on Friday sent shares in M&C Saatchi up 5.3 per cent in early trading to 185.37p, giving the company a market capitalisation of £226m.

AdvancedAdvT would have to “think very seriously about what they offer and the details of the plan they propose”, said Johnathan Barrett, analyst at Panmure Gordon. The existing mooted all-stock offer is “not much different to the current share price. I think people who are not holders in AdvT will want the option of a cash alternative.”

Roddy Davidson, analyst at Shore Capital, said: “Particularly now that the air has been cleared, with a line drawn under the FCA [probe], the market would expect to see a pretty decent premium”.

Shares in the company remain 45 per cent lower than they were five years ago.

The FCA launched its probe after M&C Saatchi identified problems with revenue recognition as well as incorrect accounting of some assets and liabilities. The company adjusted statutory pre-tax profits by a total of £28.1m for 2018 and previous years.

M&C Saatchi shares were suspended from trading for 10 weeks in 2020 after auditor PwC sought to establish its financial position.

The episode prompted the departure of Maurice Saatchi, then an executive director, as well as three other founders, Jeremy Sinclair, David Kershaw and Bill Muirhead.