The strategic moves of direct marketing companies associated with databases — whether they provided services or content — made the biggest headlines in 1998, but several other firms continued to grow through acquisition. Just as the database companies predict continued acquisition activity, so does Snyder Communications.
Snyder, Bethesda, MD, was one of the most active consolidators in 1998. Its latest purchase — alternative media firm Echo Media, Atlanta, on Dec. 28 — brought its total for the year to eight U.S. acquisitions and 12 overall with a total worth of more than $530 million. Echo, which provides shared marketing and media placement including mail cooperatives and package inserts, has net annual revenues of between $5 million and $6 million. Snyder chief financial officer Clay Perfall said Echo will augment its direct marketing agencies and sampling programs.
Snyder's largest deal was the $120 million purchase of creative advertising agency Arnold Communications. Perfall said the company will continue to look for well-run growth companies that deliver good service and can increase its presence as a full-service pharmaceutical and direct marketing provider.
“In 1998, we continued to broaden our service offerings, and 1999 will be much more of the same,” he said. “The sector still is fragmented, and we can provide better services to our clients by having broader service offerings and better geographic reach.”
Perfall said Snyder will expand its database marketing capabilities to take advantage of the growing opportunities in direct-to-patient and direct-to-consumer pharmaceutical campaigns.
Big Flower Holdings, New York, which operates through its subsidiaries TC Advertising, Webcraft and Laser Tech Color, made 10 acquisitions in 1998. The purchase of ColorStream Technologies has transformed Big Flower into a primary provider of one-to-one marketing solutions, and CEO Edward Reilly has said that such customization capabilities will drive its high growth direct marketing and digital services units.
If companies like Snyder and Big Flower continue to be leading consolidators in 1999, which companies are the leading acquisition targets?
Jack Clarke, senior vice president and business services analyst at Paine Webber, New York, said smaller firms that provide a single product and have experienced inconsistent financial performance and poor market valuations can realize “pretty substantial” appreciation of their stock price by selling to strategic investors.
Clarke identified consumer and business database firm infoUSA, Omaha, NE, consumer database firm the Polk Co., Detroit, and the Mark Group, Boca Raton, FL, which produces the catalogs Mark, Fore & Strike and Boston Proper as “three prime assets that would be better served to find a new home.” InfoUSA is publicly traded while the latter two are privately held.
Christopher Feiss, analyst with BT Alex Brown, Baltimore, also mentioned Polk and infoUSA as possible targets as well as certain assets of the old CUC International, now Cendant, including Essex Marketing and National Outdoor Group. His list of potential buyers of direct marketing companies was even longer and included the major players of 1998 as well as Memberworks, Dun & Bradstreet and First Data Corp.
Michael Petsky, president of the Winterberry Group, Manorville, NY, mentioned MDC Communications, Hawkeye Communications, McCown DeLeeuw and Ha-Lo Industries as potential buyers.
MDC, Toronto, bought three U.S.-based promotional/direct response agencies in 1998, and Petsky said it is expected to make one or two sizable marketing services purchases this year. Hawkeye, New York, is headed by former Rapp Collins CEO Steven Dapper and has a $100 million equity commitment from Chicago venture capital firm GTCR to purchase direct marketing service firms. New York venture capital firm McCown bought back Dimac this year and has stated an intention to make further acquisitions while Ha-Lo, Niles, IL, — which bought Siebel Marketing, New York, Dec. 21 — will seek promotion-related acquisitions.
On the target side, Petsky said market research companies will become a valued asset for data providers that are seeking ways to make their products proprietary.