Acquisition or IPO: Taking Stock Of Growth Options

Although we still tend to think of promotion as a quaint, little industry, the fact is many of the bigger promotion agencies are now publicly traded companies. If you look at the environment – CKS Group, Snyder, Nelson – all the big guys are public. Young & Rubicam just went public, bringing with them Wunderman Cato Johnson, one of the largest direct promotion companies.

It’s not just the big players that are opting for the public path, however. John Benfield thinks taking his mid-size Inmark Services agency public was a smart move. “It has given us a really meaningful platform to grow the company,” he says. “Having a public profile encourages and attracts resources that might otherwise be inaccessible.”

Barely anyone noticed when Inmark went public in 1995. Since then, the company’s profile has risen as it acquired two other agencies – first Optimum Group, then U.S. Concepts – and grown from 26 people to more than 200.

Ted Axelrod, executive vp of Cyrk, Inc., agrees with Benfield that going public was a good decision. Cyrk, which was already large, has also grown significantly since it went public in 1993. “It provided us with fuel for growth,” he explains.

So if going public is so great, why isn’t everyone doing it? “It either works or it doesn’t,” says industry consultant Al Gottesman. “There is no one-size-fits-all answer. It’s very situational.”

Frankel walked to the IPO water’s edge and pulled back before taking the plunge, but is still considering going public. Comments ceo-new ventures Dave Tridle: “It allows a company access to capital whilestill maintaining control of its destiny.”

Dave Ryan of Ryan Partnership disagrees. “For a promotion agency to go public as a way of generating cash or equity is a little bit unproven at this time,” he says. Ryan says his agency is perfectly content to stay independent and enjoy a “counterculture” image. As far as going public is concerned, Ryan says he hasn’t spent much time pondering the positives and negatives. “We’ve never been able to come up with a scenario that would make it a plausible and profitable option for us to pursue.”

Without hesitation, Benfield says he would take Inmark public all over again. Being public has added a sense of “transparency” to the agency that builds clients’ confidence, because Inmark’s actions are constantly monitored and every move has to be “above-board.”

“When a client recognizes that you are a public entity, there is a credibility that goes with it,” he comments. “They feel you are a much larger, more stable organization.”

Carrots for employees Growth and greater credibility aren’t the only advantages to taking a company public. Employees can benefit from the change as well. Benfield says that all of Inmark’s employees participate in option programs. “Their contributions are rewarded so they feel like they are part of a team.”

Axelrod has similar views on the depth going public brings to employee relations. “Being able to give employees the opportunity to participate in the equity of the company has been a consistent positive,” he says.

It’s often a plus for employees to have stints with public companies listed on their resumes, so going public can be a valuable weapon in the intensifying battle to retain talent. If Frankel goes public, Tridle predicts it will have a positive impact on employees. “It allows you another form of currency to attract key people,” he says.

Tridle shared one concern that may be an underlying reason behind Frankel’s hesitancy. “You’re susceptible to the ebbs and flows of the public market in terms of your stock valuation,” he comments. “There is story after story of companies that miss their targets one quarter and their stock prices get cut in half. If a company hits its target and the market goes soft, there can still be a negative impact on stock prices.”

We’re not saying that going public is the be-all or end-all. You do need a critical mass, and even then the public environment is not right for a lot of companies. It’s certainly not right for companies that don’t have a sophisticated management team in place to deal with Wall Street.

Even if you don’t have the mass, need, or desire to go public right now, you’re probably still going to end up in the public environment at the end of the day. If you don’t choose to go public yourself, you’ll likely end up being acquired by a company that has.