TNS balance sheet 'vulnerable' claims report

LONDON - WPP takeover target TNS has topped a ranking of UK-listed marketing services companies by how vulnerable their balance sheets look as the economic downturn takes its toll on the value of intangible assets.

The ranking covers 23 companies from giants such as WPP and Aegis to minnows such as Digital Marketing Group and Thomson Intermedia. It has been compiled by the respected Marketing Services Financial Intelligence report author and accountant Bob Willott.

Market research group TNS, regional agency group Mission Marketing Group and data to PR group Cagney -- in that order -- were the three companies with the highest ratio of debt plus intangible assets to equity.

TNS shareholders are currently evaluating a £1.08bn hostile bid for the company from WPP, which scuppered a lower value proposed merger between TNS and German market research firm GfK. GfK was yesterday reported to have been talking to private equity group Apax Partners about making a joint bid to buy TNS.

TNS's ratio was 3.3 compared to the average in this year's review of 1.61 and the average two years ago of 1.47. A ratio above 2.00 should "possibly cause concern", according to Willott.

The review also found that TNS was the only company where the sum of borrowings and future cash commitments arising from earnout deals was in excess of shareholders funds.

Mission Marketing Group has a ratio of 2.7 and Cagney, where chief executive Paul Simons recently departed, a ratio of 2.5.

WPP's ratio is 1.8, while the company with the lowest ratio was overseas-focused online marketing group Deal Group with 0.4.

Willott warned that while balance sheets generally do not currently look terrible, their average vulnerability has increased over two years and the downturn could bite into them.

Willott said: "While levels of debt remained comfortable at a substantial majority of publicly listed marketing services companies."

"There is an increasing risk that their balance sheets will be damaged by write-offs in respect of over-priced acquisitions as the economic downturn takes its toll.

"A decline in the performance of such acquisitions may lead to a write-down in the cost of goodwill, reducing the value of shareholders' fund relative to the amount of the company's borrowings and potentially exposing it to pressure from its bankers."