Success of reinvented Saatchis

IT IS nine years since brothers Maurice and Charles Saatchi plus their key colleagues Bill Muirhead, David Kershaw and Jeremy Sinclair left the wreckage and recrimination of their Saatchi & Saatchi advertising agency empire to start up all over again in Soho's Golden Square as M&C Saatchi. And golden it has turned out to be.

Today the business makes a profit of something over £6m, even after paying out the modest stipends of its founders. When it floats on the Alternative Investment Market, probably early this summer, it will be valued at around £80m million, putting a price on the equal share stakes of the founders, who own 75%, of £12m each.

Four of the five are still active in the business. Charles is the odd one out, being more focused on the art world and cooking, but Maurice, now Lord Saatchi, though active in the House of Lords and joint chairman of the Tory Party, is still around. None, as they say in Adland, is better at 'schmoozing the big bananas'.

Unlike most people-business flotations, this is not about taking the money and heading for the exit.

Rather it is about raising new capital - £10m of it to fund new offices in the main European markets of France, Germany, Spain and Italy.

The Saatchi business model this time round reflects the lessons learned last time. The company avoids debt - too much of which was what cost the brothers control last time. The business has also lost its appetite for deals, so this is not about bidding for Midland Bank - no longer available, anyway, now that it is owned by HSBC - nor even about paying £400m cash for the Ted Bates agency (more recently known as Cordiant).

Nor is it reliving any of the other adventures from the heady days of the 1980s. Today's formula is all about organic growth with the twist that the brothers attract and lock in entrepreneurial flair by creating locally-autonomous businesses and letting their incentivised executives get on with it. The brand attracts the talent and the talent attracts the revenues, they say.

It may seem 'like déjà vu all over again'. But advertising people know how to reinvent themselves and, against a background of a return to health in the advertising market, it should get an enthusiastic reception.

One would hope so, anyway, because marketing services are something this country does well, and it ought to be possible for this to be reflected in a healthy and diverse stock market sector.

Talking big

THE ring tones from Carphone Warehouse today have the potential fundamentally to change Britain's mobile phones industry. Behind a glitzy consumer media bash lies the serious business of a full-frontal challenge to British Telecom's dominance of fixed line telephony.

It is counter-intuitive because in the public mind Charles Dunstone built Carphone by selling mobiles. But for some time he has been building up after-sales revenues and 60% of profits now come from providing billing services and the like. But Carphone has also quietly put together a national fixed-line network by leasing some of the vast quantities of fibre-optic cable laid down by Energis, Cable & Wireless and others during the dot com boom.

So it now has a network which, when plugged into BT at local level, can for the first time provide serious competition. And it is serious because the now-fallen stars of dot com mania put in so much fibre that there is chronic overcapacity.

That means rock-bottom prices, so Carphone has created its network for a mere fraction of what it would cost to build, giving it a competitive advantage which it will use to undercut BT. This is the world of TalkTalk, a name so irritating that it will probably be memorable.

Existing technology allows people to switch to the new network at the touch of a button, but the fact that BT still has 75% of the domestic business 20 years after privatisation underlines the extent of customer inertia. People just don't get excited about phone bills. If they were the stuff of dinner party conversations, guests would leave before the cheese.

The challenge therefore is to get people to engage. Years ago Lord Young did this at One2One by offering free calls in off-peak hours - a promise that returned to haunt him. TalkTalk's offer is more restricted - free unlimited calls between TalkTalk customers, giving those on the network a huge advantage.

That may not sound like a revolution - and Carphone never knowingly undersells itself. But this could be the start of something big.

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