CLOSE-UP: LIVE ISSUE/MERGERS AND ACQUISITIONS - Mergers and acquisitions: adland's global mantra. Pressures to keep growing force big companies to go on merging, Jim Bell says

The year 2000 was extremely active for acquisitions in the

marketing communications sector. Saatchi & Saatchi, Young & Rubicam,

Snyder Communications and Lighthouse, the US-based collection of

integrated businesses, all changed ownership. Dentsu acquired 20 per

cent of B-Com3, the group company of Leo Burnett and D'Arcy, and there

were hundreds of smaller businesses acquired around the world, as the

industry continued to consolidate.



The three largest groups - WPP, Omnicom and Interpublic - have growing

market shares, accounting for some 40 per cent of the top 100 ad

organisations' gross income (source: Advertising Age). Each has revenues

of between dollars 5 billion and dollars 6 billion, and are the main

drivers of the continued search for revenue-enhancing mergers and

acquisitions.



One could be forgiven for thinking that this 'spree' must end, with the

indications of a softening US economy, consequent reductions in profits

to earnings multiples and the knock-on effect of the dotcom crash.



However, there are a number of factors that continue to drive the search

for quality businesses in the sector, not least the constant demands on

multinational groups for growth from investors.



Based on revenues of around dollars 6 billion, WPP is expected to

deliver the equivalent of an additional 12 per cent growth this year

(after 'promising' only 7 per cent), some dollars 700 million. Other

major players are expected to deliver along similar lines.



Clients have put these businesses under margin pressure for some

time.



How much more can be squeezed by cutting costs, even with the rising

proportion of revenues coming from higher margin, non-advertising

businesses?



New business and growth from existing clients, coupled with revenues

generated for the full year from last year's acquisitions, will make a

major contribution. It still seems likely that most of the top players

will have to find anything from dollars 200 million to dollars 750

million in new revenue in other ways. This means more acquisitions.



Instinctively, the US is the top priority because that is where

businesses big enough to deliver against such large numbers

traditionally reside.



The US market is quickly running out of quality, large-scale businesses

to buy in the marketing communications sector. Attention turned first to

the UK and Europe, and then to Asia Pacific, particularly China, South

Korea and Japan, where there are creative approaches to acquisition.



Geographic expansion, therefore, and aggressive moves into integrated

sectors such as direct and database marketing, public relations, event

marketing, sales promotion and interactive businesses are also driving

the search for good properties.



The prognosis for this year is that acquisitions will continue, with

more, bigger players looking to acquire the dwindling number of quality

independent businesses.



Some markets are in danger of being 'shopped out'. There are fewer

independents left in London and it's virtually impossible to find such

businesses in France and other parts of Europe.



The message is that buyers must take a more creative approach to

acquisitions.



Instead of just cheque books, they are wise to bring clear strategies

for integrating these businesses into their network, a decent long-term

view of how the business can benefit from its partnership with the buyer

and a sense of humility.



Gone are the days of sellers being mesmerised by the numbers offered for

their business. The best independent companies know their value and

often their willingness to deal is driven by prospects for the

management team and the business as a whole.



There are, of course, major properties, such as Cordiant and Grey, which

are the subject of constant rumours. What's certain is that by this time

next year, there'll be fewer advertising-led communications groups than

there are today. 2001, then, promises to be as active (and interesting)

as last year.



WHO BOUGHT WHO IN 2000



NOTES: WPP's acquisition of Young & Rubicam confirmed the group as the

world's largest marketing communications company. Paying just under

pounds 3.3 billion in shares, the deal represented a multiple of three

times revenues for the business.Given the strategic nature of the

acquisition and the diversified nature of Y&R's integrated operations,

including Impiric and Burston Marstellar, the market appears to have

accepted this multiple, which in ordinary circumstances would be

considered high.



Cordiant continues in expansion mode despite continued talk of the group

being 'in play'. The acquisition of Healthworld, a US healthcare agency,

follows several major acquisitions by other multinational groups in this

lucrative sector of the market, particularly in the US, where

advertising and promotion of non-prescription and prescription drugs has

become the fastest growing area in marketing communications.



The purchase of Lighthouse for some pounds 311 million signals

Cordiant's continued move into the integrated sector.



Lighthouse is a collection of integrated businesses built up through

acquisition, mainly centred in the US, by an investment group. The price

was considered very high, given the diverse, unrelated nature of the

businesses within Lighthouse and its lack of geographic coverage.



Deutsch Inc was America's largest remaining independent agency when it

was acquired by IPG for about pounds 475 million. Deutsch was also the

fastest growing agency in the US at the time of its acquisition, with a

growth rate of 55 per cent in 1999.



Frankel &Company is a specialist promotions/brand marketing business

with offices in Chicago, Detroit, southern California and San Francisco.

Acquired by Publicis last year for about pounds 92 million, it

represents the French groups' continued expansion into the US, where

they have amassed a number of major businesses in recent years. The

largest of these is Snyder Communications, which brought Arnold

Worldwide to the Havas group and which has become the growth engine for

its old Campus network.



Arnold is based in Boston and is rapidly expanding into a global second

agency network of the Havas Group.



Havas also acquired Abernathy McGregor,a corporate marketing

communications operation, based in New York, which handles publicity for

IPOs and other corporate development issues such as investor relations.

Among Abernathy's major clients are Barclays, DoubleClick and Vodafone

Airtouch.



Month Buyer Seller Price

(pounds m)

January Publicis Frankel & Company 92

February Publicis Fallon McElligott n/a

March Cordiant Healthworld 162

September Publicis Saatchi & Saatchi 1,179

September Cordiant Lighthouse 311

October Havas Snyder Communications 1,462

October WPP Young & Rubicam 3,279

November IPG Deutsch 475

November Havas Abernathy McGregor 50



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