It's not been a happy financial year for Cordiant Communications
Group, culminating last week in a third profit warning and predictions
of a 9 per cent decline in revenue. So what's gone wrong?
Amputated from the former Saatchi & Saatchi empire, Cordiant had two
simple choices - become a seriously big player in its own right or find
a friendly buyer.
The decision to get bigger and stronger was probably sound in principle
but the group lacked any high-profile, heavy-hitting agencies. It also
had insufficient market and financial clout to buy one - and most of the
plums had already been swallowed up anyway.
That is at the heart of Cordiant's dilemma. It became a potential buyer
when most of the best goods had already been sold. Those that were left
were of variable quality and carried high price tags.
Unable to clamber on to the top rung of the agency ladder, Cordiant,
under its chief executive, Michael Bungey, committed itself to building
a broader based marketing services group. But again it was buying too
late in the economic cycle and paid foolishly high prices. The
Lighthouse Global Network, which included arguably fading stars such as
Fitch and Financial Dynamics, was bought for a vastly inflated price.
Even the cost of the specialist Healthworld was inflated by market
conditions, however good the strategic objective.
As the economic downturn came, Cordiant found its income and profits on
the decline while the cost of its acquisitions - and the interest
charges it carried - escalated. Nevertheless the circumstances are less
frightening than those faced by its predecessor Saatchi & Saatchi a
But there is no doubt that Cordiant has a steep hill to climb if it is
to remain an independent public company. And Britain needs public
companies in the sector. It would claim to be the creative home of
advertising and should be able to demonstrate the ability to remain a
powerful economic centre for the industry as well.
Of course, Cordiant is not the only victim of its own strategy. The
acquisitive French quoted groups - Publicis and Havas - are reporting
very poor results.
Havas is losing money and Publicis has made no more profit with Saatchi
& Saatchi than it did without it. And if the French groups adopted the
same accounting rules as the US agencies, they would be in a very bad
But what else could Cordiant have done? If you need to get bigger and
businesses are not available to buy at sensible prices, is it possible
to do nothing? Sadly not.
Would Cordiant have fared better if it had downsized into a few top
quality niche businesses at the outset? Again, its portfolio of
companies contained few top-quality market leaders. Maybe more energy
could have been put into boosting the quality and reputation of its
existing businesses and in improving its profit margins.
It seems that Cordiant's troubles are more about timing than intent, and
as much about inherent weaknesses in what it already owned as in the
quality of what it could buy.