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Media Square exposed - the reasons behind its demise

A new report examines what caused the downfall of marketing group Media Square...

So many misjudgements and mistakes were made during the 11-year life of the now defunct public company Media Square that it provides an object lesson for anyone else contemplating building a marcoms group, according to an 8-page detailed analysis of the rise and fall of the company published in Marketing Services Financial Intelligence.

The analysis concludes that it is first and foremost a story of misjudged acquisitions, some of which cost a lot to finance and often failed to generate anything like the profits expected of them. “Many of those mistakes can be attributed to business naivety and financial innocence, and even to bad luck, but rarely have so many combined to create such a fatal outcome”, commented editor Bob Willott.

During its life Media Square acquired over 70 businesses at a total cost in the region of £105 million. Much of that was funded by bank borrowings with interest costs that had to be met out of trading profits that rarely materialised.

Eventually it proved impossible to meet the interest charges, let alone make regular repayments of the borrowings, without selling some of the acquired companies. Even that was not enough to save the group from financial collapse under the weight of cumulative losses of £59 million. Administrators from Pricewaterhouse Coopers were appointed in December 2011.

Even the early days of Media Square were dogged with financial challenges, not least a shortage of cash. Started by an entreprenuerial accountant Russell Stevens, the company’s first acquisition turned sour and left the group’s balance sheet rather weak. Then, within two and a half years, Media Square had bought Jeremy Middleton’s Equanim business in exchange for shares and loan notes. Media Square’s founding board was ushered out and the new team, chaired by the late Kevin Steeds, took over.

With little cash and plenty of optimism, the company bought six businesses for less than £1 million, some of them in financial distress. The group made a profit of over £250,000 in the year to 31 October 2003, prompting a year of radical development thereafter. It raised new capital on the stock market, acquired the successful sales promotion agency Clarke McKay & Walpole, and made an audacious £22 million bid for another public company Coutts Holdings that specialised in retail communications and display fittings. Suddenly Media Square was making serious sums of money.

Soon after that things went downhill very fast. The Marketing Services Financial Intelligence report chronicles the purchase in November 2005 of a bundle of marketing companies from the public relations group Huntsworth that it didn’t want to keep: “From being almost debt free, the group took on bank borrowings of about £20 million”, the report says, “and the financial period ending on 28 February 2006 was the last in which Media Square made even a small amount of profit.”

The analysis goes on to record the “bizarre” appointment of former Sun editor Kelvin Mackenzie as group chairman, the circumstances of Middleton’s departure, the arrival of Roger Parry as executive chairman, subsequent attempts to oust Parry’s management team and the “turnround” that never was.

“Media Square Laid Bare” is published by Fintellect Publishing Ltd and available free to subscribers to Marketing Services Financial Intelligence

Updated:

Media Square bosses have defended themselves to The Drum following the publishing of this piece, claiming that the blame should be laid at the feet of the founding directors.

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