*MSGI Makes Internet Push With CMG Direct Purchase

CMGI, the holding company with a track record of backing some of the most successful sites on the Web including Lycos and Geocities, has entered into a deal with Marketing Services Group Inc., New York, that should boost the profile and resources of the fast growing direct marketing services firm.

MSGI has signed an agreement to acquire the marketing services subsidiary CMG Direct and its Permission Plus Web application in a cash and stock transaction that gives CMGI, Andover, MA, a 20 percent ownership stake. The deal, expected to close by May 15, paves the way for the creation of a stand-alone Internet division at MSGI that will combine its existing Pegasus Internet with the Internet elements of CMG Direct.

MSGI chairman/CEO Jeremy Barbera called the deal his “largest to date.” It puts the company halfway to his goal of being a $250 million business by the end of 1999. MSGI acquired list firm Stevens-Knox in January and plans to announce further deals in the months to come.

Ed Mullen, president/CEO of CMG Direct, will head up the new Internet division and oversee an aggressive Internet acquisition strategy.

MSGI’s growth through acquisition and an equity investment from GE Capital is what attracted CMGI to open discussions with the company last fall.

“In the last two years they have gone from a $17 million to a $125 million company,” Mullen said. “That’s the explosive growth CMGI looks for in forming partnerships.”

Analysts said an alliance with CMGI bodes well for MSGI and should get the attention of Wall Street. MSGI stock rose to a 52-week intraday high of 11 _ after the deal was announced March 10 nd closed up 7/16 to 8 11/16.

“It’s positive for MSGI in terms of market perception and valuation,” said Mike Schonstrom, director of research for Neidiger Tucker Bruner, Denver, CO.

“These are savvy financiers putting money on the line,” said another analyst from a major securities firm.

And the same financiers that are attempting to block USA Networks purchase of Lycos. CMGI, in fact, is reported to be considering a bid for Lycos itself. This would impact MSGI, which gains full access to the resources of the CMGI family of companies that includes over 30 Internet firms. Among the subsidiaries with a DM slant are Web profiling service Engage Technologies, online advertising provider AdSmart and online content provider Planet Direct. CMGI had 98 revenues of $91.5 million and sports a market capitalization of $8.8 billion.

MSGI will adopt the mission of CMG Direct of integrating direct marketing with the Internet. Barbera said MSGI now becomes a hybrid company with two main business lines, marketing services and the Internet. The data content, database and list services of CMG Direct gives the firm a base of operations in the Boston area while Permission Plus gives Pegasus Internet a product to add to its Web hosting and other service offerings.

Permission Plus is a turnkey solution for tracking the activity of Web visitors and turning them into customers. It combines market research, database marketing, e-mail and campaign management tools to build relationships with customers and is a microcosm of the integration Barbera seeks for MSGI as a whole.

“It’s a very key turning point in our company. We are going to have two strong dominant directions now,” Barbera said.

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