It's early summer in the northeast, a time for fireflies in the evening, fledglings chirping for parent birds to disgorge food, and at the New York City offices of giant ad agency holding company IPG, the CFO gets pushed out of the nest.
It was almost three years ago that IPG first started uncovering financial rot in its books, which bloomed into a real investigation in the beginning of 2003. Since then, a June CFO change has become a regular affair. Multiple financial restatements, investigations for internal fraud, improper accounting of merger books and leases, European executive compensation and other assorted ills have yet to be put to rest. Reports broke yesterday that hapless CFO Robert Thompson will now be the fourth CFO to step down in the midst of this tumult. IPG's stock yesterday dropped another few percent on both that news and word that the SEC was expanding its investigation to cover most of the shenanigans that IPG's own investigation is uncovering.
Among agency holding groups, overly-aggressively accounting for acquisitions has been a cyclical phenomenon ever since agency consolidation picked up momentum in the early 1980s. Every other major holding company has had to restate financials due to related concerns, some repeatedly. Conglomerate "synergies" typically give way later to realizations that many costs were deferred, resulting in poorer later perceived performance. People working in those individual agencies typically do not see much of the cooperation between sister companies that holding companies are supposed to encourage.
IPG's financial results for 2004 are still due, and the firm said it expects to get those out the door by the end of Q3 2005. Typically, being late with SEC filings can put large companies in default with their lenders, but IPG said that it had renegotiated loan terms.
One pressure added to the temptation to make initial books of acquisitions look quite profitable at the expense of later financial returns is the "earn-out." When a holding company buys an agency, it typically gives itself a layer of security by withholding certain payments until it can be assured that the acquired firm meets its revenue and profit targets. This encourages the acquired company's management to hang on and to groom results to fit the earn-out requirements. A holding company pushing back too much on these results could be inviting a lawsuit, given the incentive of the purchased company's management.
Past Coverage
- IPG's Unaudited Results: Large Losses on Higher Revenues
- Another Big Agency Group Announces Accounting Problems
- IPG Financial Confusion Deeper than Initially Indicated
- Interpublic Decapitated after Warning of Financial Controls Issues
- IPG Finds Accounting 'Weaknesses,' May Restate Financials
