List Biz Shrinks as Kleid Folds and ABI Buys Walter Karl
With ABI looking to integrate its operations and list management experiencing as much account turnover as ever, more list companies could become takeover targets.
The last major list acquisition occurred in March 1996, when Acxiom Corp., Conway, AR, purchased Direct Media Inc., Greenwich, CT, the largest list company in the industry, for $25 million.
As Kleid, New York, demonstrated by its plans to file for Chapter 11 bankruptcy, a list company can become dependent on a takeover to keep it in business. Kleid president Richard Vergara admitted that the breakdown of acquisition talks with Stevens-Knox, New York, in mid-February basically ended any hope of continuing full operation for a shop that has been in the list business since the 1940s.
"We had pinned our hopes on that for the last few months,'' Vergara said. "Ralph Stevens and Jim Knox just made a decision that in retrospect probably was the right one.''
In Kleid's case, debt and rent obligations were the chief causes of financial distress. Vergara and four partners took on what he called significant amounts of debt when they obtained the company from Saatchi and Saatchi in a 1988 leveraged buyout. Kleid was also paying what Vergara termed "double the market rent for comparable [office] space'' at 530 Fifth Ave., New York.
"We had negotiations with Citibank and were on the verge of settling our [debt] situation with them, but we had not settled the landlord situations,'' Vergara said. "We had tried to negotiate out of the lease for the last two years.''
A series of major publishing account losses since September that totaled more than 10 million names -- Condé Nast to the Millard Group, Smithsonian to Novus Marketing, Kiplinger to Direct Media -- also hurt Kleid. As churn increases on the list-management side, other small shops also could be susceptible to defections.
"You're seeing more volatility in list management, less loyalty than on the brokerage side,'' Vergara said. "If a list manager has a bad year it's very easy for a client to move somewhere else.''
About 30 of Kleid's 50 employees served their last day with the company March 3. Vergara will retain the rest to handle the transition of accounts to other list companies. He expects some account managers to bring clients with them to new positions.
Kleid's plight underscores the importance of financial stability that a partner can provide.
"Some of the smaller list companies are not being able to compete with the resources of some of the bigger companies like Acxiom and Direct Media,'' Vergara said. "They want to align with stronger companies to provide more services and be in a stronger financial situation.''
Walter Karl, Greenwich, CT, improved its standing by becoming a part of ABI, Omaha, NE. ABI chairman Vin Gupta has said that the Walter Karl companies -- WK List Brokerage, WK List Management, Karl Analytics and List Maintenance Corp. -- didn't have the critical mass to be profitable on a small amount of revenues.
Walter Karl co-president Bob Cunniffe agreed that the merger will allow his company to access the resources of ABI subsidiary Database America to enhance its list brokerage and management and computer divisions.
"ABI has very aggressive plans for growth,'' Cunniffe said. "The synergy with them is what is best for our company and employees.''
Walter Karl's list management and brokerage divisions are expected to remain autonomous entities under Cunniffe and co-president Sheldon Zaslansky and retain its current employees.
Gupta, who stepped down as CEO last year to concentrate on strategic goals, said the acquisition is a sign of things to come. His mission is to make ABI, which maintains one of the largest business databases in North America, a billion-dollar company in the next four years.
"There is a tremendous demand for databases,'' Gupta said. "Once you have a database, it has so many different applications. There is a lot of cross-selling of databases and processing among smaller companies. We want to be a full-service provider, a one-stop shop. A lot of these small companies have customers that are buying business and consumer data from someone else. [Walter Karl and future purchases] give us bigger distribution for our database.''
Gupta will continue to study the many different ways people use information in the marketplace and determine how ABI can fill those needs whether it be internally, with new technology or by acquiring companies that complement its mission.