RYE BROOK, NY — Acxiom Corp., Conway, AR, will either reach an agreement to sell its Direct Media subsidiary to American List Counsel, Princeton, NJ, within the next two to three weeks or it will restructure the division in some other way, probably retaining some type of “parent relationship” with the list brokerage, according to Steve Brighton, Group Leader for the Direct Media Product Group.
Addressing dozens of the Direct Media’s customers at its 3rd Annual Consumer Co-op here yesterday, Brighton said the company was “exploring some alternatives,” and that a sale to ALC was one possibility. Acxiom confirmed late last month that it had signed a non-binding letter of intent to sell Direct Media to ALC in a deal in which Acxiom would retain a minority stake in the new company and ALC would retain management and board control.
“Acxiom has struggled with the basic business that Direct Media is in,” Brighton told the crowd during his welcoming remarks.
Speaking later with reporters, Brighton said he believed that ALC and Acxiom already had agreed on the terms of the sale and the financing, and were working through the due diligence phase of the possible acquisition.
Few details about the transaction were revealed, and Brighton said there were several possible scenarios for how the merger could be assembled. He said he did not know what the purchase price might be, although he said he thought the sale “would generate a return for Acxiom.”
The company paid 1 million shares of stock for DMI in 1996, valuing the acquisition at $25 million at the time but at $50 million when the DMI principals redeemed their shares in April of this year.
Brighton said Acxiom generates $500 million to $600 million per year in cash flow. He also noted that DMI’s revenues have increased in the three years since Acxiom made the acquisition, and that the division’s expenses have decreased as a percent of revenues.
Brighton said Acxiom is not in talks with any other companies for the sale of the division.
ALC, which declined to comment further on the acquisition, has been pursuing a possible merger with DMI since before Acxiom acquired it three years ago, Brighton said.
Acxiom’s willingness to sell the division follows three years during which the database-technology company has struggled to incorporate the world’s largest list brokerage into its operations, trying to overcome cultural differences while at the same time implementing financial controls to improve profitability and grow revenues.
Brighton said that although DMI has grown, it has not met the 25-percent annual growth rate that Acxiom needs to be considered a growth company by investors.
“In a public company, the analysts want you to jump over a seven-foot fence and achieve 25-percent growth every quarter,” he said.
The list industry, however, is growing at only a 10-percent annual rate.
“In a mature industry, if you can’t get new customers, you have to take market share,” he said. “This makes a lot of sense for Donn [Rappaport, chairman of ALC] and ALC, and it makes a lot of sense for Direct Media, because they will get to do the things they do best, which is sell, in a list environment.”
Acxiom’s financial analysts have been positive about the potential sale.
“I can’t say I’m sorry to see them sell it,” said Jack Clarke Jr., who follows Acxiom at PaineWebber, New York. “It was the slowest growing and the least technologically oriented of all their businesses. The business was doing fine for a list business, but it was diluting Acxiom’s growth rate.”
Acxiom would retain the data-processing business for Direct Media and would presumably acquire additional database-services revenues from ALC’s roster of customers.
“That’s the reason they bought [Direct Media] anyway,” Clarke said. “They didn’t want to be in the list business. They wanted the data processing.”
Brighton said he would be likely to return to Acxiom if the sale is completed and he said the management of DMI would be likely to remain with the list brokerage.
“We’re not trying to sell Direct Media to bail out,” Brighton said. “We love Direct Media. We’re trying to place a sales organization in a more positive selling environment, like ALC.”
