Soup to nuts, flip or float

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For those who slept through last week, some leading U.S. direct and interactive marketing services companies agreed to sell themselves for a combined $17.45 billion. The magnitude of those deals would have been unimaginable even three months ago. Welcome to the world of private equity and mindless land grab.

The most astounding of these deals is the $7.8 billion price for Alliance Data Systems Corp., a leading provider of database, loyalty, e-mail and marketing services. Upon completion, Alliance Data will join asset manager Blackstone Group's portfolio of companies. Blackstone has investments in Dutch media giant Nielsen Co., craft store chain Michaels, Freescale Semiconductor, Orbitz owner Travelport and British cookie maker United Biscuits.

At $3 billion, the Acxiom sale is smaller than Alliance Data's, but private equity groups Silver Lake and ValueAct Capital thought the price was right. Shrewdly, Acxiom has reserved the right to accept competing bids for another 60 days.

Should Microsoft Corp. think of itself as a private equity firm? It sure acted like one last week with its $6 billion, all-cash offer for aQuantive Inc., owner of the nation's largest interactive marketing agency, Avenue A/Razorfish. In fact, there hasn't been a major online company that Microsoft hasn't bid for recently.

And what about WPP Group's $649 million pitch for 24/7 Real Media, an ad-management technology firm whose rival DoubleClick will soon be Google Inc.'s for $3.1 billion? Small change to private equity firms, but a coup for WPP, owner of storied ad agencies such as JWT, Ogilvy & Mather, Young & Rubicam and Wunderman.

The acquisitions in the online advertising space - well, you've got to ask, what do these companies stand for? Is WPP an agency holding company offering advertising and marketing services or is it also in the ad-serving business? Is Google an advertising platform, search engine or an ad-serving company with DoubleClick on board? Is Microsoft a software maker, a portal owner or an ad-serving firm? It's in media, but is Meredith a magazine publisher or in the ad agency business? Yes, it bought Los Angeles CRM and interactive agency O'Grady Meyers a year ago.

So, if you're an individual or institutional investor, how do you value these companies? If you're a potential customer, are you locked into using only a certain set of services from that company because of the product-bundling structure? Is one-stop shopping back? And if you're the management making these acquisitions, how do you avoid conflicts of interest?

Where is the focus in these deals? Is everyone's goal a soup-to-nuts offering?

As for private equity's interest, it's no secret these deals are made for their flip-or-float potential and asset-stripping possibilities. Good for the sellers. Make sure you take the cash and avoid the earn-out clause. But it bears keeping in mind that most of these purchases are fueled by staggering debt.

Private equity now has a taste of the direct marketing industry. There are a number of attractive targets out there: Harte-Hanks, Experian, Equifax, Merkle. The list goes on. If private equity retains its interest in DM, expect this entire industry to change, for better or for worse.

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