Omnicom closes $100m Communispace deal

January 25, 2011

Silence reigns at Omnicom Towers on its mooted $100m deal with eCRM and insight company Communispace. Which is odd, for two reasons. First, it is the biggest deal engineered by the marketing services juggernaut since its ill-fated acquisitions of Agency.com and the somewhat more successful Organic in 2003. Second, and rather crucially – I hear the deal has gone through.

At all events, Communispace founder, president, chief executive and 10% shareholder Diane Hessan is packing her bags (now presumably heavy with loot).

The question is, what happens now? In an earlier post, I pointed out that $100m is a very steep price – yet, curiously, it does not seem to have been a stumbling block for that wily operator John Wren, Omnicom president and chief executive officer.

At the time I concentrated on the financials, and speculated that there must be something very special about this deal for Omnicom to hazard such an over-priced acquisition. That logic can be applied with equal relevance to Communispace’s clients. True, there are many the two parties have in common, plus a few that Omnicom would like to lay hands on. Yet it’s hard to ignore the conspicuous conflicts. Not just on the brand side, either. A slug of Communispace’s business flows from Omnicom’s rival agencies. Here’s an excerpt from AdAge that neatly summarises the conflict dilemma:

One reason why an Omnicom deal would make sense? Communispace lists as its clients several marketers that work with agencies under the holding company’s banner, including HP, PepsiCo, FedEx, Kraft and Campbell. But the Communispace client list also includes agencies at rival holding companies, like Havas’ EuroRSCG, Publicis Groupe’s Starcom MediaVest Group and Interpublic Group of Cos.’ Martin Agency. Were an Omnicom deal to happen, such alliances would likely have to dissolve, as would accounts with clients like Verizon, a major competitor to a big Omnicom client, AT&T.

I’d add WPP’s Ogilvy to the list of competitors as well (check out Jim Edwards at BNET on this one).

How does Wren plan to steer himself around that one? His last experience with a major acquisition, controversially managed through off-balance-sheet vehicle Seneca Investments, was not a happy one. Let’s hope history does not repeat itself.


Which agency network group will land the next big deal?

December 31, 2010

Corporately, the 2010 agency scene has been remarkable in only one respect: the absence of a big, transformative deal. Consolidation, the key underlying trend of the past decade or so, seems to have stopped in its tracks.

True, there have been some near misses. Most notably, Dentsu nearly acquired digital network AKQA for about $600m, but backed off at the last minute over fears about the excessive price, not to mention the perceived hostility of AKQA’s senior management.

Publicis Groupe, however, did not launch its much-touted (not least by me) all-shares takeover bid for a holed-below-the-waterline Interpublic Group. And Vincent Bolloré, chairman of Havas, did not conclude the longest hostile takeover bid in history by acquiring the 70% of Aegis Group he does not already own.

Symbolic of this lacklustre M&A year has been the muted activity of the sector’s most aggressive actor, WPP. Group chief Sir Martin Sorrell restricted himself to useful infilling, of which the most decorative has been the acquisition this week of Blue State Digital, the agency that helped to propel Barack Obama into the White House, and the bankrolling of Peter Mandelson’s consulting business, Global Counsel. The £100m channelled into acquisitions this year is mere pocket money compared with WPP’s last big splurge – £1.1bn spent on buying research company TNS in late 2008.

Now I know New Year crystal-gazing is a dangerous thing – not least because the wildly inaccurate predictions, which often result, come back to haunt you. But I do believe change is in the air. No, really.

One straw in the wind is Omnicom’s return to the poker table after about a decade’s absence. Chief executive John Wren has pooh-poohed suggestions that his company will seek out transformative deals of the Razorfish (Publicis) and 24/7 Real Media (WPP) kind. But he has acknowledged Omnicom’s backwardness in the digital sphere and announced a Big Leap Forward. Typically, this is to take the form of partnerships rather than outright acquisition. All of which has not stopped Omnicom from getting into intensive negotiations to acquire eCRM company Communispace for about $100m (we may know the result of these quite soon; I gather there are some tax complications). Note that Omnicom has access to $2bn of revolving credit, with the option of an extra $500m.

Nor, for all the caveats that must surround any such bid, should we expunge Publicis/IPG from the script. Publicis has been put off its stride during 2010 by a messy succession crisis, which has now been settled for the time being. If anything, IPG’s plight has worsened during that time. To add to chief executive Michael Roth’s woes (prime among them, a smouldering fire in the IPG engine room, McCann Erickson), it looks very likely that one of his principal networks, DraftFCB, will lose its $1bn signature account, SC Johnson (which it has handled for decades).

Mitchell: Deal doesn’t add up?

And let’s remember that Aegis is not off the hook, either. Probably the most significant agency deal of 2010 was Aegis’ £200m acquisition of Mitchell Communications in July. Back then it seemed a shrewd move, and not only for Harold Mitchell, the eponymous founder, who ipso facto became a 4% holder of Aegis stock. In return, Aegis reckoned it had got significant exposure to Australasia, and a form of insurance against another hostile sortie from Bolloré – even if it did pay top Australian dollar for the privilege.

I have since heard the deal wasn’t quite as margin-enhancing as Aegis chief Jerry Buhlmann would have had us believe at the time. Mitchell has now admitted that revenues are not all they were cracked up to be. At any rate, Aegis has had to reissue its circular, with certain embarrassing amendments to corporate expectations contained therein. How Bolloré must be laughing all the way to his bank (Mediobanca).


Omnicom close to $100m deal with Communispace

December 13, 2010

Omnicom is poised to clinch a $100m deal to acquire eCRM and research company Communispace, according to sources in a position to know.

Communispace specialises in creating communities online – it claims to have over 350 in operation. It can mine and shape sophisticated customer database material for large, blue-chip clients – which often find difficulty in establishing the actionable status of “chatter” in the social media sphere. Communispace clients include Coca-Cola, Campbells, Colgate, Hasbro, Heinz, HP, Microsoft, Pepsi and Unilever.

Communispace was set up in 1999 by current president and chief executive officer Diane Hessan, a Harvard MBA. It is based near Boston, Massachusetts, but has global reach, with offices in London; Genoa, Italy; and in the Asia Pacific region, operating out of Sydney, Australia. Maria Rapp, a founder of Communispace, is managing director of European operations.

Communispace is 43% owned by California-based Dominion Ventures Inc. A further 13% is in the hands of Boston-based Women’s Growth Capital Fund. Senior staff appear to own the rest.

It is easy to see why Omnicom would be interested in buying such a company, but not why it should be paying so high a price –  if financial data that has come my way is any guide. Communispace’s 2010 gross revenue is expected to be $47m and profit before tax, $6.3m: which suggests an already high price/earnings multiple of about 16. Additionally, however, just under 30% of that profit-before-tax figure is expected to be siphoned into an options bonus scheme for senior Communispace management, which would effectively make the multiple soar well into the 20s. It has rightly been pointed out that Omnicom is not normally known for its financial extravagance. Nor has it been particularly active on the acquisitions front recently. There must be a pretty important piece of mutual business at stake to justify paying Communispace’s $100m asking price.


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