Bob Willott on the bottom line

BOB WILLOTT

Yesterday's announcement that the cash-rich US listed digital technology consultancy Sapient Corporation is to buy the Nitro advertising agency raised more questions than it answered.

Is it a grand expansion into creativity?   Will it cost $50 million as publicised?  What is Sapient hoping to get for its money?

First, the deal has not yet been done.  According to Sapient, it expects to complete it in July although this is subject to satisfying certain conditions and approvals.   So the financial terms may have been agreed in principle, but they are certainly not public yet.

As to what Sapient is buying, it believes that Nitro will help it exploit the convergence of internet and traditional broadcast media.  However, the Nitro business itself is a bit of a Chinese puzzle - what the dictionary describes as "intricate...consisting of many interlocking pieces". 

Nitro is run by an Australian Chris Clarke who gives his address as Greenwich, Connecticut.  One of the interlocking pieces of his empire is Nitro in London which Clarke owns through an offshore company called Nitro Group (BVI) that is based in the British Virgin Islands.  Other related agencies are based in Hong Kong, Australia, China and the United States.

Nitro established a presence in London when it bought the business of Soul Advertising in 2005 for £220,000.  At the time Soul had net liabilities of £131,263 and was struggling to expand.  Soul had been set up by some former Bartle Bogle Hegarty executives who left Nitro after deal.

Nitro continued to acquire other businesses in the UK.  In July 2005 it paid £250,000 as a first instalment for the acquisition of The River Communications Group (later renamed A Plus Studio). In the following January it acquired 51% of Mook, bringing the total outlay on these two companies to nearly £1 million.  But, by the end of 2006, most of that outlay had been written off and Nitro had run up losses of £565,000 on its London operations as a whole. 

By the end of 2007, the London business was being funded by a bank loan of £817,000 plus additional loans totalling about £800,000 that had been provided in 2005 by a related Nitro company based in Hong Kong.   However, early in 2008 the London agency restructured its capital to enable some of its bank borrowings to be repaid.  That restructuring appears to have involved replacing some intra-group debt by permanent share capital and offering those new shares as security for a new loan.

Of course, the London arm of Nitro is only part - and perhaps a very small part - of the story.  According to Sapient, the business was founded in Shanghai and has a global presence.  Without examining the remaining pieces that are reported to have merited the $50 million purchase price, this particular Chinese puzzle will remain unsolved.

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