Saatchi & Saatchi

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Saatchi & Saatchi

375 Hudson Street
New York, New York 10014
U.S.A.
Telephone: (212) 463-2000
Toll Free: (888) 322-6010
Fax: (212) 463-9855
Web site: http://www.saatchi-saatchi.com

Wholly Owned Subsidiary of Publicis Groupe S.A.
Incorporated: 1970
Employees: 5,500
Gross Billings: $7 billion (2000 est.)
NAIC: 541810 Advertising Agencies

One of the most prominent names in the world of advertising, Saatchi & Saatchi provides advertising, marketing, and public relations services through its 152 offices worldwide. With clients such as Procter & Gamble and Toyota, the agency is renowned for its innovative ads. Rowland Communications Worldwide handles the company’s PR services. Founded by brothers Charles and Maurice Saatchi in 1970, Saatchi & Saatchi has had a tumultuous history, culminating in its purchase in 2000 by French communications giant Publicis Groupe S.A.

Brash Beginnings

Charles and Maurice Saatchi, celebrities of the British advertising industry, were born in Baghdad in 1943 and 1946, respectively. When persecution of Jews intensified in Iraq in the mid-1940s, their family moved to London. Twenty years later, Charles cut his eyeteeth as a copywriter at the London office of Benton & Bowles. There he met Ross Cramer, and after a couple of years of successful collaboration, the two struck out on their own. In 1967, they opened CramerSaatchi, an advertising consultancy. Rather than take on clients directly, the pair offered their services on a project-by-project basis to ad agencies in need of creative input. By 1970, the firm had gained a reputation as a producer of racy and eye-catching ads, including an ad for Britain’s Health Education Council (HEC) that featured a distinctly large-bellied man with the caption, “Would you be more careful if it was you that got pregnant?”

Encouraged by their success, Charles wanted to transform the consultancy into a full-fledged ad agency. Cramer wanted out, so Charles brought on his brother Maurice as his partner. They announced the newly named Saatchi & Saatchi agency in a full-page ad in the Sunday Times. Setting the tone for the company for the next decade or so, the brash ad claimed that the agency would do away with account executives and revamp the “dying system” of compensation for billings. Within six months, however, the company had hired six account executives. The brothers also leaked to the press that they would be starting the company with £1 million in billings, a gross overstatement. But the early pronouncements had attracted the attention of the London business world, a necessary step to becoming a leading ad agency—and that was the brothers’ goal.

In another unorthodox move, Maurice began cold calling potential clients to drum up business. In Britain, agencies waited to be contacted by clients; to move in on another agency’s client was not considered ethical. The Saatchi brothers, however, were not going to be hampered by hidebound tradition. Although the cold calling did not immediately gain the agency new clients, it did get them attention. When an account came up for review, they were more likely to be called in to compete for the business.

The agency fared well from the beginning. Another round of popular ads for the HEC, this time comparing Londoners who smoked to lemmings with a death wish jumping off a cliff, garnered the agency publicity. Their client list grew to include Associated Newspapers and the automobile manufacturer British Leyland. By 1972, the company had profits of £90,000; the following year, profits were up to £100,000.

In 1973, Saatchi & Saatchi made its first ad agency acquisitions. It purchased E.G. Dawes and Motley Advertising, doubling the company’s size. By 1975, acquisitions and expanded assignments from existing accounts led to profits of £400,000. The company now counted Schweppes and Gillette-Braun among its clients.

That year, Saatchi & Saatchi merged with the much larger Garland-Compton agency. In a complicated reverse takeover, Saatchi & Saatchi sold its company for shares. When the deal was complete, Saatchi & Saatchi would own 36 percent, Compton would own 26 percent, and the public, 48 percent. The deal pleased all the players: Saatchi & Saatchi would gain Compton’s long-established international clients, like Procter & Gamble, and the staid Compton would gain from Saatchi & Saatchi’s reputation for creativity. The new Saatchi & Saatchi Garland-Compton was now the fifth largest ad agency in the United Kingdom, with a public listing to fuel further acquisitions.

In 1978 Saatchi & Saatchi began work on a campaign for Margaret Thatcher that would enhance their reputation as a hothouse for creative ideas. The first ad agency to be hired by a political party in Britain (heretofore the parties had relied on pro bono work), Saatchi & Saatchi devised a hard-hitting attack on the Labour Party. Their “Labour’s Not Working” ad, which depicted a seemingly endless line of people outside an unemployment office, helped propel Thatcher into the prime minister position. The high-profile campaign also brought international attention to Saatchi & Saatchi, especially in the United States.

Saatchi & Saatchi benefited from the boom in ad spending in the early 1980s. The company gained new business from established clients and added several important new ones: Black & Decker, Allied-Lyons, and Campbell Soup. In 1982 the company gained the British Airways account, and their innovative ads would help turn the ailing airway around. The success and popularity of the ads did not hurt Saatchi & Saatchi’s reputation, either. The company’s streak of record profits continued.

Frantic Growth Through Acquisitions: 1980s

With their eye set on being the number one ad agency in the world, the Saatchi brothers knew their next step was a presence in the United States. In 1982 Saatchi & Saatchi bought Compton Advertising outright for $57 million, $29 million up front and $28 million to be paid over the next ten years. To fund the deal, the Saatchis issued more stock, reducing their stake in the company to 18 percent.

A similar pattern repeated itself over the next several years, with the Saatchis issuing stock to fund a spree of acquisitions. In 1983, Saatchi & Saatchi purchased the ad agency McCaffrey and McCall, who boasted such clients as ABC, Canadian Club, and Mercedes-Benz. They paid $10 million at once, and another $10 million over three years. The Saatchis, as agreed, let the existing executives run the company independently. After all the payments were made, however, most left the company and accounts began to move to other agencies—also a pattern that would repeat itself. The Saatchis allowed the company to founder as they continued their pursuit of number-one status.

To widen their scope for acquisitions, the brothers decided to branch out into public relations, marketing research, and management consulting. In 1984 they purchased two market research companies, McBer & Company and Yankelovich, Skelly & White. They also spent $100 million, plus a $25 million payout over the next few years, to purchase the Hay Group, a management consultancy. With 100 offices in 27 countries, the Hay Group was Saatchi & Saatchi’s largest acquisition yet.

The acquisitions continued unabated, with the company buying 13 firms in 1985. The Saatchis were willing to pay top dollar for small and mid-sized companies—ten times earnings or more was not unusual. In addition to ad agencies, the corporate communication consultant firm Siegel & Gale joined the team, as did the merchandising firm Howard Marlboro Group and the public relations firm Rowland Company. By this time, Saatchi & Saatchi had organized itself into two units: communications services, which included advertising and public relations; and consulting services, which included recruitment, management consulting, and market research. That same year, Maurice Saatchi stepped up as chairman of the board.

The size of Saatchi & Saatchi’s deals ballooned in 1986. The company purchased the ad agencies Dancer Fitzgerald Sample for $75 million and Backer & Spielvogel for $56 million down and $45 million to be earned out of profits over the next six years. The biggest acquisition that year, however, both raised the company to its coveted number one position and tipped it over the edge into a downward slide. To purchase the ad agency Ted Bates Worldwide, Saatchi and Saatchi issued 57 million new shares, enough to raise the $450 million purchase price.

An Empire Made and Lost: Late 1980s and Early 1990s

Integrating the newly acquired agency into Saatchi & Saatchi proved tortuous. CEO Simmonds-Gooding, in an effort to bring some order to the jumble of acquisitions, decided to merge all the ad agency subsidiaries into one under the Saatchi & Saatchi name. Clients and agency heads, however, were dead set against the plan. Clients feared conflicts of interest, as one agency tried to promote competing brands. Agency heads resented the interference with their authority. In mid-1987, after months of wrangling, Ted Bates Worldwide merged with Backer & Spielvogel to form Backer Spielvogel Bates. In addition, Dancer Fitzgerald Sample merged with Saatchi & Saatchi Compton to form a U.S. subsidiary, Saatchi & Saatchi DFS Compton. Several frustrated executives soon left, including Simonds-Gooding and Donald Zuckert, the chairman and CEO of Bates.

Saatchi & Saatchi posted record profits in 1987, its 17th consecutive year of growth; however, troubles began to accumulate. The brothers felt they were ready to expand in a new direction: financial services. They tried to purchase Midland Bank, Britain’s fourth largest bank, but were rejected by the bank’s board. When news of the offer leaked to the press, the brothers were ridiculed. Analysts saw no logic in the deal, and the Financial Times opined that Saatchi & Saatchi “smacked of a firm which had run out of ideas.” Within two days, the company’s share price fell 6.2 percent. The stock then fell by another third in the October 19 stock market crash.

Company Perspectives:

Our mission is to be revered as the hothouse for world-changing creative ideas that transform our clients’ businesses, brands and reputations .

Although profits rose again in 1988, the company’s financial troubles were coming to a head. Clients dissatisfied with the acquisitions and the management changes had left in droves, creating a $1 billion hole in billings. In addition, ad spending in the United States was down and the cost of running the unwieldy holding company was rising. Executives urged a name change for the holding company so Saatchi & Saatchi Advertising, which was doing quite well, would not be tainted by the problems of the holding company. The Saatchi brothers would not hear of it. Efforts to move the company to more modest offices met with the same resistance.

In 1989 profits fell to $37 million, down from $244 million in 1988. Midway through the year the WPP agency became the largest advertising agency in the world, pushing aside Saatchi & Saatchi. In an effort to cut costs, the company began laying off employees. The high note of the year was the creation of Zenith Media, a combination of the media buying units of Saatchi’s various agencies. The new subsidiary was immediately successful.

In desperate need of cash, the company decided to sell off its consulting businesses. The unit’s revenues as a whole were not up as much as expected in 1989, with the Hay Group posting especially disappointing results. Saatchi & Saatchi was hoping to sell the businesses as a unit for at least $420 million, however, having spent $250 million to acquire them in the first place. In the end, the consulting businesses were sold off piecemeal for a disappointing total of $160 million.

Criticized for the management of the company, Maurice and Charles Saatchi felt it best to step into the background for a while. Robert Louis-Dreyfus was brought on as chief executive late in 1989 with the mission to turn the company around. He continued the cost-cutting strategy, laying off 5,200 employees over the next two years. In 1991 Louis-Dreyfus orchestrated a financial restructuring that included a new stock issuance and extensions on its loans. Although many shareholders were dissatisfied with their diluted holdings, the arrangement bought the company time. The next step was to wait for an economic recovery to raise ad spending.

The next couple of years showed little improvement for Saatchi & Saatchi. Backer Spielvogel Bates was fast losing clients, including Xerox, Prudential Insurance, Fisher-Price, and Miller Lite. Although Saatchi & Saatchi showed a pretax profit in the first half of 1992, by 1993 things were headed back downhill. Saatchi & Saatchi Advertising lost two important clients, first Chrysler, then Helene Curtis, for a total of more than $90 million in billings.

The Mid-1990s: The Founders Ousted

Robert Louis-Dreyfus resigned as CEO that year, leaving an opening for Maurice and Charles Saatchi to take on more prominent roles once again. The shareholders and board had other ideas, however. In December 1993, the board insisted that the brothers leave their lavish offices and join the rest of the company in their more modest space. In addition, they voted Charles Saatchi, who had attended only one board meeting ever, off the board. Battle had been engaged.

As Charles and Maurice searched for ways to regain control of what they considered their company, a group of shareholders, led by money manager David Herro, was looking for ways to rid the company of the brothers entirely. With the opinion that the brothers had mismanaged the company and squandered resources with lavish personal spending, the shareholders called for the board to oust Maurice as chairman of the board. Some encouraging gains in new accounts and stock price left the board unsure if such a change was for the best. After continued wrangling, however, the board voted Maurice off the board in December 1994.

Not wanting to completely lose Maurice’s charisma and influence in the outside world, the board offered Maurice the position of chairman of subsidiary Saatchi & Saatchi Advertising. Maurice refused. His brother Charles resigned his honorary position of president-for-life, and the two set out to recreate their agency, regardless of the harm it did to their old company. Three top executives at Saatchi & Saatchi, Bill Muirhead, Jeremy Sinclair, and David Kershaw, resigned and joined forces with the Saatchi brothers. The five became equal partners in what they planned on calling The New Saatchi Agency.

Key Dates:

1970:: Charles and Maurice Saatchi form the ad agency Saatchi & Saatchi in London.
1975:: Company merges with Compton Partners in a reverse takeover, forming the holding company Saatchi & Saatchi Garland-Compton.
1978:: Saatchi & Saatchi produces the highly successful “Labour Isn’t Working” campaign for Margaret Thatcher and the Conservative Party.
1982:: Company wins the British Airways account; Saatchi & Saatchi spends $57 million to fully acquire Compton Advertising.
1985:: Company adds to its numerous ad agency acquisitions and also purchases merchandising firm Howard Marlboro Group and public relations agency Rowland.
1986:: Company purchases rival ad agencies Ted Bates Worldwide, Dancer Fitzgerald Sample, and Backer & Spielvogel.
1989:: Profits fall for the first time in 19 years.
1990:: Robert Louis-Dreyfus is appointed chief executive officer.
1995:: Ccompany board dismisses founder Maurice Saatchi as chairman, Charles Saatchi steps down as president-for-life, and several key executives resign in protest; holding company renames itself Cordiant, although it retains the Saatchi & Saatchi name for its advertising subsidiary.
1997:: Cordiant “demerges” into Saatchi & Saatchi plc and Cordiant Communications Group.
1999:: Ad agency Cliff Freeman & Partners buys itself back from Saatchi & Saatchi.
2000:: Publicis Groupe S.A. purchases Saatchi & Saatchi plc for $1.9 billion.

Saatchi & Saatchi sued, claiming conspiracy to injure the company. When the dust settled several months later, the new agency was named M & C Saatchi and had lured some key accounts from Saatchi & Saatchi, including British Airways.

Many on the Saatchi & Saatchi board and in the company had long argued for the need to change the holding company’s name to distinguish it from the ad agency subsidiary. With Maurice and Charles no longer around to quash the idea, the board changed the holding company’s name to Cordiant in 1995. The subsidiary Saatchi & Saatchi Advertising retained its name.

Cordiant Struggling in the Late 1990s

The first two years after the ouster of the Saatchi brothers were rocky for Cordiant. It posted a pretax loss of $34.5 million in 1995, down from a profit of $21 million in 1994. Saatchi & Saatchi Advertising did make some positive steps forward. It won a $50 million Bell Atlantic account and several others, including Reynolds Wrap and Pepsid AC. The following year, Saatchi & Saatchi was named Agency of the Year at the International Advertising Festival in Cannes. M & C Saatchi continued to lure away executives and accounts from Cordiant, however, including the Hongkong Bank account, which Bates Worldwide had held for 35 years.

In 1997 Cordiant broke the company in two, creating Saatchi & Saatchi plc and Cordiant Communications Group. The two entities each held 50 percent of the successful Zenith Media. Kevin Roberts, an executive from New Zealand, was tapped for the chief executive position of Saatchi & Saatchi plc.

The company’s structure shifted yet again in 1999. One of the company’s U.S. agencies, Cliff Freeman & Partners, bought itself back from Saatchi & Saatchi, thus regaining its independence. In addition, Saatchi & Saatchi plc combined its PR agency Rowland Worldwide with Saatchi & Saatchi Business Communications. The new Rowland Communications Worldwide was headquartered in New York. Saatchi & Saatchi ended the year with revenues of $732 million.

The circle seemed complete for Saatchi & Saatchi the following year when it was acquired by Publicis Groupe, S.A., for $1.9 billion. The French communications giant was working its way up through the mega-agency chain through a series of acquisitions, much as Saatchi & Saatchi had done in the mid-1980s. With the purchase of Saatchi & Saatchi, Publicis was ranked the fifth largest communications-advertising firm, behind WPP Group, Omnicom Group, Interpublic Group, and Havas Advertising. As part of the transition, Saatchi & Saatchi plc decided to move its headquarters from London to New York.

Publicis kept the Saatchi & Saatchi agency operating independently. Its subsidiaries, Rowland Communications Worldwide and The Facilities Group, were not folded into Publicis divisions. In mid-2001, however, Publicis combined Saatchi & Saatchi’s Zenith Media with its own media buying agency, creating one large agency.