Update: Willis Stein Buys $205M Stake in ProtocolWillis Stein & Partners, Chicago, the private equity company that recently shelled out a whopping $780 million in cash in its agreement to acquire Ziff Davis Publishing, New York, separately made a smaller but significant $205 million investment in Protocol Communications, Boston.
Protocol, an $88 million, integrated marketing services company made up of 12 acquisitions, provides strategic planning, fulfillment, online and offline customer care, and teleservices and database marketing capabilities. It appealed to the equity firm, according to executives close to the deal, because of its breadth of marketing services capabilities and its Internet-based customer-care services.
Willis Stein, which has built its reputation on publishing, technology, direct marketing and telecommunications investments, will acquire a more than 70-percent majority interest in Protocol along with equity firm BCI Partners, Teaneck, NJ, who initially introduced Willis Stein to Protocol. ING Barings' U.S. Merchant Banking Group, London, made a small investment (under $1 million) as well, and is among seven banks providing debt financing.
"The industry dynamics we like are present in direct marketing," said Robert Froetscher, managing director at Willis Stein. Froetscher, who led the deal, comes from a background steeped in direct marketing experience managing consumer sales and marketing. "It's roughly a $250 billion industry and growing at double-digit rates, but it's [also] very fragmented, so even the largest players like Harte-Hanks and Acxiom have a tiny share of the market. There's no 800-pound gorilla out there."
Froetscher joined Willis Stein in early 1998 and spent the next 18 months looking for the right full-service marketing services company to finance, one that would have great capabilities across many areas and one that could provide those capabilities for medium- and large-sized companies. "We didn't see companies that provided that for a medium-sized customer. Typically, you'd find a company with great capabilities in one area, like inbound telemarketing or database management, but we couldn't find strong competencies in multiple areas," Froetscher said.
When Froetscher heard about Protocol through BCI, it became clear to him his search was over. "You've got a $90 million a year company with a huge potential for growth," he said. "Protocol has some very exciting e-commerce capabilities that they're selling successfully," he added. One, which Froetscher called "click to chat," enables an e-commerce customer shopping an e-commerce site to click a button and engage immediately with a customer service representative either by phone or e-mail. Other companies, like LivePerson, New York, provide similar support for companies, including CBS Sportsline's IgoGolf, iQVC and Tickets.com.
Marketers are beginning to cast an eye toward lowering online shopping cart abandonment, and these services will be one way for marketing services providers to help them achieve that. "There's a huge need and a huge opportunity," Froetscher said.
Protocol president/CEO Steve McLean will remain in place and will retain minor ownership in the company, whose clients include Casio, IBM and Honeywell.
Willis Stein also recently formed USApubs.com, an online mail order and telemarketer of magazine subscriptions, and plans further investments in the marketing services arena. "We think the convergence between Internet and direct marketing is a great place for Willis Stein to invest funds." He added that the firm will continue to look at adding strategic capabilities to Protocol and may train its attention initially on the fulfillment area. "We're more focused on finding the right fit and the right skill set."