Smaller Companies: Mosaic needs to pull itself together again

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IT COULD be said that archaeologists, rather than analysts, have become more interested in examining the bits that keep being chipped off Mosaic Investments. Boardroom rows, culminating in departures and a profit warning earlier this year, have darkened the City's picture of the former high-flyer.

Confidence in the stock has deteriorated dramatically over the past 12 months, with the shares falling from a peak of 270p to 67p on Friday. The shares have even been cold-shouldered by the market's recent buoyancy, losing a quarter of their value over the past three weeks.

That is hardly surprising, given that Greg Hutchings, the company's chairman, who is better known for his leading role at the industrial conglomerate Tomkins, has previously gone on the record to admit that things have not gone entirely to plan.

Back in July, when he ousted Brian Disbury as chairman, he said: 'I was hoping it (Mosaic) was going to be another Tomkins. That has not happened.' Profits before tax in the year to July slumped 44 per cent to pounds 4.2m.

Mr Disbury finally resigned as a director earlier this month, going on his way with a pounds 189,000 cheque and leaving behind a company that, some in the City believe, will seriously have to rethink its corporate strategy. The days of quickfire acquisitions, which resulted in Mosaic dipping its fingers in many pies including automotive accessories and the merchandising of cartoon characters such as Teenage Mutant Hero Turtles, are probably over for the time being.

For one, the recession is not conducive to active acquisitional activity. Vendors just will not let go of businesses at the current depressed market prices.

Running parallel with that is the important fact that David Williams, the recognised acquisitions expert at Mosaic, is no longer with the company. He left last year.

Mosaic faces a difficult task in restoring investor confidence. Since a return to heavy acquisitional activity is virtually out, it will have to turn its attention to organic growth.

But with Mr Hutchings' time virtually all consumed by Tomkins, Leon Angrave and Sue Ball are left to prove that accountants can, after all, run companies.

However, table-thumping by accountants, with the emphasis on the bottom line, is unlikely to go down well at numerous Mosaic subsidiaries that have been acquired on an earn-out basis.

Many of the businesses bought came with existing management, and Mosaic will have to negotiate the delicate task of holding on to key people. The biggest danger when an earn-out agreement expires is that people depart, leaving behind rudderless businesses.

Overall, Mosaic is far from becoming a museum exhibit, but investors should continue to view the stock from a respectful distance.