Update: Y&R Purchases KnowledgeBase For $175 Million

Young & Rubicam's acquisition of KnowledgeBase Marketing last week marked a commitment by the world's fifth-largest advertising agency to become a full-service provider of one-to-one marketing, and it underscored the growing acceptance of the model by brand-based clients.

Y&R, New York, purchased KnowledgeBase, Chapel Hill, NC, a provider of consumer list and database content and services, in a 60 percent cash/40 percent stock deal worth $175 million. The acquisition came the same day Snyder Communications, Bethesda, MD, created an agency, Brann Worldwide, focused on direct marketing services.

“A top of mind CEO issue with many of our clients is to have their organizations become much more customer focused,” said Jay Bingle, CEO of Wunderman Cato Johnson, the second largest direct response agency in the United States and the Y&R subsidiary to which KnowledgeBase will report. “The new buzz term is customer relationship management. Our entire model for the last 18 months has been built around a CRM offering.”

Successful CRM requires access to customer touchpoints, such as direct mail and e-commerce, which Y&R enjoys through existing client relationships and an infrastructure for the management of customer data that KnowledgeBase provides, said its CEO Tim Toben. KnowledgeBase, which generated 1998 revenues of $34 million and has been growing at an annual rate of more than 30 percent, will remain a stand-alone company, but its services will be integrated with Wunderman.

KnowledgeBase's data warehouse, data mining and analytics add to existing database and modeling capabilities at Wunderman and give clients access to data captured and analyzed in real time from the Internet and other media. KnowledgeBase brings technology to better access large customer databases imbedded in clients' legacy computer systems and also will provide a U.S.-based data processing center to complement an existing center in the United Kingdom.

KnowledgeBase will be the database marketing provider to the Y&R group of 10 advertising, marketing and communications companies that generated $1.52 billion in 1998 revenue. Its Amerilink database of 175 million consumers will “obviate the need” for a third-party data provider, Bingle said.

Y&R sees a potential revenue stream from database services it currently outsources — key clients spend $7 million a year with third parties, according to ING Barings Furman Selz analyst Karen Ficker — that KnowledgeBase now can keep inhouse, and it will use that new core competency to attract new clients.

For KnowledgeBase, the acquisition provides a strategic complement to the company's own CRM efforts, an opportunity to build e-commerce businesses and global exposure through 339 offices in 70 countries.

“The competition is global these days, and we could not have done it on our own,” Toben said. “We needed to combine and become part of this consolidation trend.”

KnowledgeBase, which was formed in 1997 by the merger of I Rent America, Customer Management Services and Dynamic Marketing Services and acquired database consultant Kestnbaum & Co. in December, had been approached about an acquisition last year by firms in the information services, Web portal and advertising agency sectors. It had initial discussions with Y&R at the National Center for Database Marketing Conference in December and consummated formal negotiations in February.

Interest in KnowledgeBase, Toben said, was a sign that “major global agencies are looking much harder at this whole area of digital marketing and one-to-one marketing.”

KnowledgeBase is Y&R's first major acquisition since going public last May. It was one of only three companies of its size that was not aligned and fit Y&R's criteria as a company that could round out its services, Bingle said. Although KnowledgeBase can pour data in and out of Internet applications, the agency is pursuing the acquisition of an e-commerce or Internet services company.

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