High customer costs drive deals
High customer costs drive deals
The number of mergers and acquisitions taking place among direct marketing-related firms is down overall, but the marketing services segment has been a hot bed of activity. Deals struck just last week include CognitiveData's acquisition of CMS, InfoGroup's purchase of Experian's business database and Q Interactive's deal for Postmaster Direct.
"It's all about the customer" used to mean a company took customer satisfaction seriously. This maxim, however, increasingly reflects the new reality of direct marketing-related mergers and acquisitions: As customer acquisition costs have risen both online and offline, the deals taking place are all about how to get more customers.
"It is going to be cheaper to buy customers in bulk than one at a time," said Stuart Rose, managing director at investment bank Tully & Holland.
Johnson & Quin's purchase of Staples' direct mail production business InteliMail last week brought in customers in the financial services, retail and government arenas. Also last week, Deluxe Corp. picked up Aplus.net and MerchEngines to increase its small business customer base.
Rising postage and paper costs continue, while online e-mail acquisition lists and pay-per-click search terms are more competitively priced, making customer acquisition through traditional means more inefficient. Companies are looking for more efficient ways to bring in new customers.
The goal of these deals is to "gain scale in a core area," which can bring greater efficiency with it, Rose said. "We're mostly seeing strategic deals, as opposed to private equity pouring into the marketplace, with the goal of building a platform," he added.
David Henkel, president at Johnson & Quin, echoed these thoughts when asked about the InteliMail acquisition. "This is a great opportunity to become more efficient and use our resources carefully in a challenging environment," he said. The acquisition "will bring in considerable additional sales volume to a facility that is already utilized quite well, enabling us to get the most out of our resources."
The InfoGroup and Experian deal is a strategic partnership at the moment — but could grow into something more in the future.
"All of the major marketing services providers have some businesses that compete with one another," said Rick Erwin, SVP and GM of Experian Marketing Services, in an interview about the deal. "The interesting thing with InfoGroup and Experian is that there are many more complementary partnership opportunities between the two than competitive ones. I see many opportunities for that relationship to grow in the future."
Currently, that partnership will involve Experian reselling InfoGroup's data. Experian will cease compiling the National Business database internally.
B-to-b database consultant Mac McIntosh said the partnership strategy is the best path for companies in the database marketing industry, including list vendors. He hinted that more consolidation and partnership deals are on the way.
"[Companies] will either merge with other companies that can add resources they don't have," he said, "or they will sell, aggregate, or they'll bite the bullet and change how they do business."
In other recent acquisitions, the deals revolved around technology that make it more cost-effective for marketers to acquire new customers. This was the case in CognitiveData's acquisition of CMS. The combined company plans to roll out a new data processing platform that will provide catalogers with more accurate data and faster turnaround times at a lower price than what is currently available for their customer acquisition strategies.
Q Interactive acquired Postmaster Direct in order to build its performance-based advertising network. This type of customer acquisition strategy is what marketers seek in these ROI-driven times, said John Doyle, managing director and founder of Peachtree Media Advisors.
"When times are good, companies want to be in branded and display advertising," he said. "When things are like they are now, companies want more targeted media like performance-based marketing" to help them acquire new customers.
"There are a lot of similar businesses out there, and some will be able to grow through acquisition," said Rose. Marketing services companies also show "promise of growth going forward," making them attractive acquisition targets, he added.
Investment bank Petsky Prunier's Second Quarter Deal Notes reports that M&A and investment activity in the marketing, information and digital media industries declined in the second quarter of 2009 compared to the first quarter. Aggregate quarterly deal volume was down 17% from the first quarter and total transaction dollar volume dropped 8%. In the marketing services segment, however, deal volume increased by 30% and dollar volume was up more than 340% with consolidation, driven by the need to streamline costs, according to the report.
Carol Krol contributed to this article.