Saatchi and Saatchi

Saatchi & Saatchi is a British multinational communications and advertising agency network with 114 offices in 76 countries and over 6,500 staff. It was founded in 1970 and is currently headquartered in London. The parent company of the agency group was known as ''Saatchi & Saatchi PLC'' from 1976 to 1994, was listed on the New York Stock Exchange until 2000 and, for a time, was a constituent of the FTSE 100 Index. In 2000, the group was acquired by the Publicis Groupe. In 2005 it went private.

History

Early years (1970–1975)

Saatchi & Saatchi was founded in London by brothers Maurice (now Lord Saatchi) and Charles in 1970. Following stints starting as a copywriter at the New York City offices of Benton & Bowles in 1965, then at Collett Dickenson Pearce and John Collins & Partners, Charles Saatchi teamed up with art director Ross Cramer, and the genesis of what would become Saatchi & Saatchi was born in London in 1967 as the creative consultancy CramerSaatchi. The consultancy took on employees John Hegarty and Jeremy Sinclair and began to work direct for clients. It was Sinclair's "Pregnant Man" ad for the Health Education Council which first attracted attention to the small agency. Charles's younger brother Maurice joined the business in 1970 after Cramer's departure whereupon it was renamed "Saatchi and Saatchi" and developed into a full-service advertising agency.

As a creative consultancy they had mainly worked on projects primarily for agencies but having become a full service agency they were able to quickly build their own solid client base and, by 1975, this included blue-chip clients such as Associated Newspapers, British Leyland, Brutus Jeans, Cunard, Dunlop, National Magazines, and Nestle. They also worked for the Labour Party.

It was during these early years that the agency produced its first famous ad: the Pregnant Man for the UK's Health Education Council featuring a man who appeared to be pregnant.

In 1975, the Saatchi brothers set upon a ferocious course of business acquisitions. With the reverse takeover of the Garland Compton agency in 1975, they achieved a public company listing and were thereafter able to make rights issues to raise the capital required for their acquisition drive.Goldman – Conflicting Accounts

Garland Compton were a long established, conservative British agency, founded by Sidney Garland in 1927. In 1960, the US agency, Compton Advertising, bought a minority holding so that they could build their own international network, primarily to service their largest client, Procter & Gamble. Garland Compton was also a top 10 agency with big spending clients including Bass, British Caledonian, Gillette, New Zealand Dairy Board, Procter & Gamble, Schweppes and United Biscuits. They had also established a regional network of agencies and, of course, had access to the global Compton network. With the merger, the key management positions were taken by Saatchi people.

With the merger, Saatchi & Saatchi moved into Garland Compton's offices on 80 Charlotte Street in the west end of London; and the agency now found itself in the UK Top 5 agencies for size of billings.

Saatchi & Saatchi Garland Compton (1975–1988)

This was a successful 13 years for Saatchi: a time when the agency produced admired creative work, and had an appetite for global business expansion.

Noted work included their campaign "Labour Isn't Working" on behalf of the Conservative Party before the
1979 UK general election and ongoing campaigns for British Airways, and Silk Cut with whom the agency had long relationships. The agency was seen as producing breakthrough creative work with a bold attitude and employed people who went on to be stars of their industry including Sir John Hegarty, Lord Tim Bell and Sir Martin Sorrell.

The acquisition drive was less about removing competition than about adding to their offering of professional marketing services beyond advertising, and later included an international expansion drive – particularly into the United States. Between 1972 and 1987 over 35 marketing services businesses were acquired, including four significant ad agency networks. Those acquisitions are listed below:

Scarcely any of the growth of the Saatchi & Saatchi PLC was organic with the only start-ups being ''The Sales Promotion Agency '' in 1980 and ''Financial Dynamics PR'' in 1986. Whilst their foundation London office was consistently successful in winning new clients, it too was propelled forward in the 1976 merger with the UK operation of the larger Garland-Compton business resulting in its tripling of size and a relocation into the Compton premises. Goldman quotes executives of acquired entities including David McCall (McCaffrey & McCall) and Alan Siegel (Siegel+Gale) saying that they never met Charles Saatchi and that neither brother nor other group management had any involvement in their business after acquisition. There was no drive to achieve back-office economies, no systemisation of process/administration, and no cross-referrals of inter-group business.

Financial mechanisms

At its foundation in 1970, Saatchi & Saatchi was financed with £100,000 of capital from the brothers and some backers including the designer Mary Quant and her husband. The initial shareholding was 15% Cannon Holdings (Quant & friends); 42% Charles; 38% Maurice; 2.5% John Hegarty; 2.5% Tim Bell. The company was profitable in its first year. To achieve the first large merger (Garland Compton in 1975) the brothers sold their interest in their business for shares, receiving 36% of the enlarged group, while Compton U.S.A owned 26% and 38% was held by public shareholders. The Compton UK listed status meant that the Saatchi & Saatchi business could now issue stock, and the capital for the subsequent acquisitions was raised by giving existing shareholders the first rights to purchase new stock at a discount.

Commonly, the acquisitions used a part cash up-front/ part earn-out mechanism as perfected by Martin Sorrell. The 1982 acquisition of Compton's U.S. business, for instance outlaid $29.2 million in cash and another $27.6 million to be paid over ten years if the agency achieved after-tax profits of $4.07 million. The rights issue to raise the $29.2 million watered down the brothers' holding to 18% of the combined group.

From June 1988 (see next section), the company began to use redeemable preference shares to raise capital. These securities look like equity and were classified as such on the company's balance sheet but since a failure of the company's share price to rise above a pre-determined threshold at a nominated forward date would enable the preference holders to put their stock back to the company, these instruments were in truth more like interest-paying debt.

Difficulties and decline

Difficulties arose after the 1987 Bates acquisition as some clients perceived conflict concerns with other group agencies. Bates clients Warner-Lambert (billings $68 million), RJR Nabisco (billings $96 million), Michelob (billings $38 million), Ralston (billings $12 million) and McDonald's (billings $8 million) all pulled their accounts in the months following that acquisition. Colgate-Palmolive assignments were also pulled from Bates at the same time as their direct competitor Procter & Gamble were pulling business from Saatchi & Saatchi Compton and DFS Dorland due to their conflict concerns. However the London ad agency was still the number one in the profits in the UK in 1987 and the Worldwide Group was performing financially with Saatchi & Saatchi Company PLC recording its seventeenth year of consecutive growth with profits of £124.1M up from the 1986's £70.1M. The Group expanded its public listings to include the Paris Bourse and the New York Stock Exchange.

The brothers in 1987 made their boldest move to date when they made plans for a take over run of the ailing Midland Bank, Britain's fourth largest bank at the time with 2,100 UK branches. The bank's Board rejected the offer in September 1987, openly questioned the qualifications of the Saatchis to be running a bank and may have leaked details of the bid to the press. In the same month Maurice Saatchi met with Board executives of the Hill Samuel merchant bank to discuss an acquisition. Once the financial press became aware of the moves the brothers became the subject of unprecedented ridicule with the criticisms focused on the notion that bank customers, staff and shareholders would be able to make no sense of their bank being part of an ad agency group. The City's reaction was swift and in mid-September 1987 the Saatchi & Saatchi share price fell 6.2% in two days.

On 19 October 1987, the world stockmarkets crashed. Saatchi & Saatchi stock fell by 1/3 in twenty-four hours and by mid-October was at £5.48 down from £6.70 in mid-September and £7.05 high of 1987. As a result of the perceptions lingering after the Midland Bank discussions, on top of the general nervousness that followed the crash, by 1988 Saatchi & Saatchi Plc was unable to use its previously reliable rights issue method to raise the capital it needed to continue its acquisition drive.

In June 1988, the company issued £176.5 million of convertible preference shares at £4.41 each to fund its acquisition of the Gartner Group, an information technology market research firm. If Saatchi PLC shares didn't go above £4.41 by July 1993, the holders could put the shares back to the company at £4.41 plus a 25% bonus. Saatchi & Saatchi PLC stood to owe £211 million for the £176.5 million of capital raised.

Profits were up 11% in 1988 to £138 million but in 1989 the Group had to report its first ever decline after eighteen years of growth when the profit dropped dramatically to £21.8 million. When this was forewarned at the March 1989 annual general meeting the share price dropped promptly by £0.6 to £3.20 or 16%. Between January and May 1989, 6% of the workforce or 800 employees were laid off, by the end of 1993 that number had grown to 7,000.

In June 1989, Saatchi & Saatchi announced its intention to sell off its entire consulting division and to focus on advertising and related services. Later that year Robert Louis-Dreyfus was appointed as CEO of the listed company. He affected the sale of a number of businesses (the consultancies Infocom and Hay Consulting would collectively sell for half their initial purchase price) and presided over a major restructuring of the company until his departure in mid-1992. His successor was Charles Scott, who had joined the business with Louis-Dreyfus in 1989 as Finance Director. He continued the cost-cutting and consolidation drive but found himself in regular disagreement with Maurice Saatchi and the two executives sometimes conducted their spat via press leaks and stories which found their way into the papers.

Ousting the Saatchis

David Herro is a U.S.-based investment analyst and fund manager. His employer Harris Associates L.P. controlled a 9.6% holding in Saatchi & Saatchi managed by Herro. He maintained dialogue with his former employer, the State of Wisconsin Investment Board, which had built up an 8.1% holding during Herro's time there and with colleagues at the General Electric Capital Corporation, which held 5%. Herro became concerned in 1992 at the negative effect on the investment of the public bickering between Scott and Maurice Saatchi and made this view known to the Board along with his intention to monitor the business closely.

In late 1994, Herro expressed his view (and that of his associate shareholders) to the Board of Saatchi & Saatchi PLC that Maurice should be dismissed as chairman due to his tardiness in reducing costs by maintaining expensive corporate offices at Berkeley Square for too long; Maurice's expressed intention to perhaps launch a takeover/partial takeover; his insistence on a new incentive/option plan which Herro saw as structured to Maurice's favour. In December 1994, the Board succumbed to shareholder pressure and sacked Maurice as chairman. Within a month senior executives Jeremy Sinclair, Bill Muirhead, David Kershaw, Moray McLennan, Nick Hurrell, Simon Dicketts, and James Lowther would all also resign and join Maurice Saatchi in a new business which would become known as M&C Saatchi. Charles Saatchi, other Saatchi staff and some consequential clients would follow including Gallaher Group, Mirror Newspapers, the retailer Dixons and after a competitive pitch, British Airways.

After the brothers

The ousting of the Saatchi brothers in 1995 and the subsequent formation of M&C Saatchi saw a period of turmoil for the agency, as key figureheads from the London office joined the defection to the new entity. At this point, nearly £40 million of revenue left the agency, with a further £11 million spent on severance and litigation against the staff members who left.

In 1995, Saatchi & Saatchi PLC was renamed the Cordiant Communications Group and the subsidiary businesses split into two main groupings: Research or Advertising. The Saatchi & Saatchi Advertising network formed the keystone of the latter. The acquisition frenzy that characterised the agency throughout the 1980s was taken to task under the new management system. This led to a number of agency assets being sold, including the Fitch design company (to the WPP group), management consultants The Hay Group and a number of the other 383 offices around the world that had been acquired in the 1980s.

After the 1995 shakeout, the key imperative for the new owners was to manage the relationships with Saatchi & Saatchi's blue-chip client base, which at this point included decades-old partnerships with the Campbell Soup Company, Hewlett-Packard, Johnson & Johnson, Procter & Gamble, DuPont, Philip Morris and General Mills. The strength of these relationship were the legacy of the earlier acquisitions of Compton, of Bates Worldwide and of Dancer Fitzgerald Sample whose relationship with Procter & Gamble had stood since the 1920s. While the British Airways and Mars defections in 1995 destabilised the agency's reputation in London, it seemed not to affect operations in its biggest market, the United States. The growth of its new healthcare arm in New York City and increased spending from its West Coast auto clients Toyota and Lexus enabled a period of steady growth for its American operations.

In 1997, Saatchi & Saatchi officially dropped "Advertising" from its name. This was part of an imperative installed by Kevin Roberts, a beverage marketing veteran brought in to revive the agency's fortunes. A significant decision of his was to move the global headquarters of the agency from its Charlotte Street, London address to its Hudson St, New York City office. Newly dubbed an "ideas company" by Roberts, the agency sought to usher its resources towards the internet, still very much in its infancy in 1997.

Acquisition by Publicis Groupe (2000)

In 2000, after speculation that it would be acquired by WPP or Omnicom, Saatchi & Saatchi joined the Publicis Groupe, a global marketing concern based in Paris, France. Publicis kept Roberts as CEO, content with his vision for an "ideas agency". Saatchi & Saatchi still underwent some turmoil throughout this time, as the dot-com bubble saw the closure of its San Francisco office, which effectively ended its 15-year relationship with the Hewlett-Packard company. The account was subsequently split between a Publicis agency and creative agency Goodby, Silverstein and Partners. Johnson & Johnson also decided to review its relationship, withdrawing its $US100m Tylenol account from the New York office. A few months later, InBev announced that its Beck's Beer account would shift to Leo Burnett after only a year at the agency. As a result, Roberts committed to building revenue through its existing clients, which led to additional assignments, with Saatchi Los Angeles securing new accounts such as ''Pur Filtered Water'' and ''Millstone Gourmet Coffee''. Efforts were also made to shore up the Los Angeles office after it missed a $US40 million brief for Toyota's ''Scion'', a new sub-brand targeted at youth, which was given to San Francisco-based Attik, a hybrid creative agency.

Despite these losses, this strategy gave rise to the '' Lovemarks'' philosophy – a theory espoused in a book by the same name released by Roberts. While this met with scepticism in the advertising world, Roberts was vindicated in 2006 when he secured nearly $US700 million worth of billings from two clients, Wendy's and department store JC Penney. Subsequent additions to the New York office, such as the New York Tourism Board and Cold Stone Creamery have been described by both client and agency as 'being due to a strong belief in the Lovemarks' philosophy. Despite this, after only a year with the agency, Wendy's decided to pull the majority of its business into another roster agency, Kirshenbaum Bond & Partners, after complaints from Wendy Thomas (the namesake of the restaurant) who did not take kindly to her likeness being used in the advertising.

In 2005, critics complained that in creating a £20 million campaign for a new Brazilian spirit the agency spray-painted graffiti images on walls and buildings in the East End of London.

Dr Martens CEO David Suddens decided to fire Saatchi & Saatchi as their advertiser on 24 May 2007. This was because of a one-time advertisement that used a picture of 1990s music icon Kurt Cobain without the permission of Courtney Love, Cobain's widow. In its defence, Saatchi released a statement indicating their regret of Dr Marten's decision to terminate their services with them but emphasising that they believed that the advertisement was deliberately edgy but not offensive.

Although the agency had gained early fame for its "Labour isn't working" advertising for the Conservative Party in 1979, in 2007 it was appointed the advertising agency for the Labour Party. The agency then devised the '' Not Flash, Just Gordon'' advertising campaign for the party in anticipation of the calling a snap general election by the newly installed Prime Minister, Gordon Brown.

A New Alliance

While the addition of Wendy's and JC Penney to the American client roster reaffirmed Roberts' belief in the "ideas agency" model, the London office continued its slide as it plummeted out of the UK Top 10 list of agencies (a list, compiled by industry magazine Campaign UK, based on reported client billings). In early 2007, the London office saw the bulk of its work for Toyota UK and Europe leave to upstart agency CHI & Partners, just months after it had lost the entire Lexus business to the same agency. Late 2006 saw the return of some Toyota business, including the £60m pan-European launch of the Auris, Toyota's Corolla

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