IQI Swaps Stock With Publicly-Owned ACT

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IQI Inc., Los Angeles, one of the nation's leading private teleservices companies, has fortified its position in the industry by entering into a stock-for-stock merger agreement with floundering, publicly-traded ATC Communications Group Inc., Dallas.

The transaction, which requires ATC shareholder and regulatory approvals, is expected to be completed within 90 days,

ATC will issue approximately 34.2 million shares of stock in exchange for IQI's equity. IQI shareholders will own 57 percent of the common stock after the merger; ATC shareholders will own 42.5 percent. The company will continue to be traded on the NASDAQ National Market System. CIBC Oppenheimer Corp. is acting as ATC's financial advisor.

ATC's valuation in the marketplace was substantially lower than the industry medium of other publicly traded companies. On December 30, 1997, ATC had a market-to-book multiple of 1.1 as compared to the industry medium of 2.9.

"ATC was an attractive target," said Laurie Kolbeins, Managing Director, Texada Capital Corp., Wayne, PA, an investment banking firm.

According to Kolbeins, ATC's stumble was primarily caused when its largest client, AT&T, removed some of its business. ATC had to close an entire facility. Gross profit declined $1.8 million because of lower capacity utilization and decrease in service volumes. For the 12 months ending September 1997, a loss of $2.5 million was reported.

"ATC was attractive to IQI because it was complementary," said Stephen McNeely, CEO of IQI and the new entity, which will initially maintain the name IQI. "ATC adds extensive background and knowledge in the application of inbound as well as in a wide array of technological applications from simple to highly technical."

The combined company will provide custom-developed strategic sales and service applications, outsourced and facility management operations, inbound customer care teleservices, traditional high-volume outbound database telemarketing and market research solutions with 8,000 teleservice professionals, 6,000 workstations and 21 call centers. The company's combined client base includes American Express, AT&T, Bell South, First USA, Procter & Gamble, Sears, U.S. West, Universal Card and Western Union.

IQI's 1997 revenues were $159.5 million with 70 percent of the revenues generated from the company's outbound services. The company's custom market research affiliate, Elrick & Lavidge, whose clients include American Century, Compaq, Frito Lay, Hallmark, 3M, and Procter & Gamble, contributed $37.1 million in revenues. ATC's 1997 revenues were $89.6 million, with 70 percent of teleservices revenues generated from the company's inbound services and 30 percent from outbound services.

"This merger is unusual in the sense that the private company is actually larger than the public company," said Kolbeins. "This is known as a reverse merger, although one company always comes out on top."

IQI is looking to go public, according to Kolbeins, to better access capital, and provide a bigger chance to land major accounts and liquidity to its investor group, Thayer Capital, which is the real money behind IQI. Thayer Capital, headed by Dr. Paul Stern and partners Frederic Malek and Rick Rickertsen, is a private equity investment firm based in Washington DC and IQI's largest shareholder. It manages Thayer Equity Investors, Ill, a private fund whose goal is to generate superior equity returns through acquisitions of companies.

"Thayer Capital formed IQI to actively acquire telemarketing companies," said Kolbeins. Recent IQI acquisitions included Edward Blank Associates and Elrick & Lavidge.

"The end game for a private equity investment firm like Thayer is to gain liquidity and return by taking these companies public," said Kolbeins.

"The biggest advantage to using equity in a company is in motivating the employees," said McNeely. "It provides an even greater incentive for employees to work hard when they can see that their hard work is helping to create value in the company that everyone can share in. Being public provides you with a currency for potential acquisition.

"This merger not only dramatically increases the array of value-added services we will provide, but also expands our core competencies so integral to building and strengthening strategic client partnerships," McNeely added. "The combined company will provide total customer care, customer acquisition and custom market research. We will truly be a customer driven, innovative, growth oriented, integrated marketing services provider," said McNeely.

But what will really set the company apart from its competition, according to McNeely, is its "strong market research component."

"This merger is a great strategic fit that enhances the capabilities of both companies," said Michael Santry, chairman and CEO of ATC. "The strong senior-level corporate relationships that both ATC and IQI have with present customers will also help fuel growth in our new company." Santry will co-chair the combined company with Stern.

"Combining IQI's unique capabilities in multilingual, pay-for-performance, and database management with ATC's information technology platform will create a strong, strategic weapon, allowing us to quickly add new call centers in a cost effective manner," said Stern, "The combined company is a powerful platform for growth."

New directors of the combined company will include McNeely; Santry; Stern; Malek, chairman of Thayer Capital and former president of Northwest Airlines and Marriott Hotels; Drew Lewis, former chairman of Union Pacific Railroad and Secretary of Transportation; and Peter Ueberroth, former commissioner of baseball.

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