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Crunch time for Omnimedia

June 2003

Crunch time for Omnimedia 

Reeling company must rebound without Martha



With the departure of Martha Stewart as head of the company she founded and built, investors will soon find out whether Omnimedia can prosper - or even survive - without its caterer-cum-media mogul at the helm.

Earlier whispers that the style maven was under investigation for insider-trading sent Martha Stewart Living Omnimedia into a tailspin, with steep quarterly losses and overall sales dropping 20%.

Now, analysts said, the company must deal with executive turmoil and charges that Stewart committed criminal securities fraud and obstruction of justice.

For a 600-employee firm with no other big personalities, the pressure could be powerful.

"The future of the company hangs in the balance right now," said Alan Bergstrom of The Brand Consultancy. "If Martha goes to jail, the brand could die. If she's exonerated, it's still going to be an uphill battle.

Stewart will stay as "Founder and Chief Creative Officer."

Company president Sharon Patrick, who has avoided the spotlight, is taking over as CEO. Board member and investor Jeffrey Ubben becomes chairman.

"This is a recognition that Martha's time and attention over the next year has to be focused on the legal issues and someone else has to focus on the day-to-day running of the company," said Ken Marlin, managing partner of Marlin & Associates.

Reacting to Martha's criminal indictment, analysts said a major worry is that Omnimedia advertisers - including Ford and Procter & Gamble - won't wait to watch the dust settle.

"These companies tend to be very cautious," said Hayes Roth, a brand expert at Landor Associates in New York. "It wouldn't surprise me if they decided to end association" during the criminal proceedings.

"We are continuing to monitor the situation," said GM spokeswoman Ryndee Carney.

"We have already purchased advertising [with Omnimedia] through July, and we haven't decided what we're doing after that," said a Ford spokeswoman.

Omnimedia shares edged up 48 cents to $10 yesterday before the announcement of Martha's departure. Experts said the gain reflected relief the scandal will finally be resolved in court and a bounce after a 20% drop since Monday.

Since the insider-trading scandal broke last June, advertising in Martha's flagship magazine Living has plunged 30%.

Sales of Martha's Everyday housewares products, sold through Kmart, have tanked 30%, the company said.

Martha has also become persona non grata at CBS' Early Show, where she formerly had a segment to plug her brand. A CBS News spokeswoman yesterday said "our response hasn't changed ... We will make a final evaluation when the process has played itself out."

Stewart's daily show, "Martha Stewart Living," is syndicated by CBS-owned King World, which declined comment. Nielsen ratings released yesterday showed viewership plunged 21% in the May sweeps.

Omnimedia gets more than half its revenues from ads, and 30% from licensing deals.

"It's too soon to say, but we remain comfortable with our relationship [with Martha Stewart]," Alex Bernhardt, CEO of Bernhardt Furniture, told the Daily News. Bernhardt recently launched a line under the Martha Stewart Signature label.

With Donna Petrozzello

Originally published on June 5, 2003

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