American List Counsel, Princeton, NJ, and Direct Media Inc., the Greenwich, CT, list management arm of Acxiom Corp., Conway, AR, are in early stages of merger talks, which could lead to the formation of a new company jointly owned by principals of both ALC and DMI, with Acxiom retaining a minority position, several sources confirmed.
Other investors also could have a stake in the new entity, according to preliminary plans, which are far from complete, the sources said. Industry insiders speculated that part of the deal could be contingent on the much smaller ALC securing additional investors or financing.
A merger would free the entrepreneurial, marketing-oriented DMI from the control of Acxiom, which has struggled to integrate the country's largest list brokerage into its organization in the three years since acquiring it. But analysts and industry insiders said DMI would benefit from an ongoing relationship with Acxiom, which increases DMI's value by adding data analysis capabilities and other database services.
Officials at the companies did not offer much insight. An Acxiom spokesman said the company does not comment on rumors or speculation, and ALC president/CEO Donn Rappaport did not return six phone calls over the past several days. Dave Florence, founder and chairman of DMI, confirmed that talks of a merger between ALC and DMI have taken place but referred further inquiries to Acxiom. He said he had “not seen a letter of intent” for ALC to merge with DMI, although other sources said that such a letter does exist.
ALC is thought to be positioning itself for an eventual public stock offering, although it was not clear whether the merger talks were aimed at achieving that goal.
A source at DMI said that company's principals would like to gain independence from Acxiom's control, and several people both inside the company and in the industry report that an intense culture clash between Acxiom and DMI has hampered the integration of the two companies. A financial analyst who follows Acxiom said the company also may want to sell DMI simply because it might not have met Acxiom's stringent financial targets.
“[The sale of DMI] would not surprise me,” said Robert Bolen of J.C. Bradford & Co., Nashville, TN. “They have thresholds that they have to reach — and if it does not grow as much as they thought it would, they might want to unload it.”
Acxiom recently reported that the DMI division had revenues for the fiscal year ended in March that were flat compared with the year ago levels, around $72 million. Last summer, the division laid off 30 employees to meet its financial targets. The Acxiom/Direct Media products group generates almost 10 percent of Acxiom's annual revenue, which totaled $730 million in the fiscal year ended in March, and 15 percent of its pretax profits. Acxiom's profits before special charges last year were $65.5 million.
Acxiom originally agreed to pay $25 million for DMI in 1996, but the actual payment received by the DMI principals earlier this year valued the deal at more than $52 million in Acxiom stock. It was not clear what the price DMI might fetch if Acxiom did sell it. One list company executive who asked not to be identified, however, said DMI might have lost some value under Acxiom's reign.
The merger, if it does occur, would almost certainly need to involve an ongoing relationship with Acxiom for it to be successful, industry insiders said.
“If Acxiom is not part of it — and ALC and Direct Media go off into the sunset together, I don't see that having much of an impact on the rest of the industry,” said Ralph Stevens, president of list firm Stevens-Knox, New York. “[Acxiom] has tools there that Direct Media has been using very well for its clients and its customers.”
Stevens, who hadn't spoken to the principals of either ALC or DMI, said such a merger could bolster ALC's online efforts, which it operates through its ALC Interactive division.
“Both Direct Media and ALC have Internet capabilities and departments that work with the Internet, so they could merge those,” he said. “It gives them a leg up in that area with both their capabilities and probably would make them, in terms of their involvement with the Internet, the major player out there.”
Although no firm merger plans are expected to be announced this week, some in the industry speculated that DMI might have to report some news at its Third Annual Consumer Co-op, which starts tomorrow in Rye Brook, NY. Hundreds of the firms' customers are expected to be there.
In other news last week, Acxiom filed to offer 5.5 million shares of common stock to the public, including 1.5 million that will be offered by the company and the rest by certain stockholders. The company said it would use the proceeds to reduce the outstanding balance on its credit facility, which would give the company more money for acquisitions, working capital and general corporate purposes.