Consolidators Come, Maybe Go
Lake Group to build a network for DVC; Aspen considers `options.’
Terry Graunke didn’t waste much time getting back into the consolidation game.
With the ink barely dry on the sale of Lighthouse Global Network to Cordiant Communications (August PROMO), Graunke’s Lake Capital investment group this fall acquired DVC Group with designs on developing a global network based on the Morristown, NJ-based agency’s core competencies.
The deal (first reported in PROMO’s October issue) includes a commitment to invest more than $100 million from Chicago-based Lake Capital, private-equity firm Frontenac Co., also Chicago, and other unidentified investors to build a worldwide network around DVC’s promotions, direct-marketing, and Internet practices.
“The plan is to build it and own it for a long period of time,” says Graunke, acknowledging that the sale of Lighthouse after just two years “was a surprise to us, too. We would have loved to keep that business longer, but we got an offer we couldn’t refuse.” Cordiant paid more than $400 million in stock for Lighthouse which, Graunke notes, means “we still own some of the company.”
At the time of its sale, Lighthouse was a $159 million operation made up of 14 businesses in three core areas: promotion marketing, investor relations and p.r., and design. Because of its narrower scope, Graunke says the DVC network “probably won’t be as big as fast.” DVC had net revenues of $33 million and total billings of $54 million in 1999.
Lake set its sights on DVC because of “the management, both the founders and the next tier down,” and “the client base, which is much bigger than the company right now” and boasts AT&T, CBS, Labatt USA, Perdue Farms, Pillsbury, Warner Lambert, Roche, Johnson & Johnson, Pfizer, and Georgia-Pacific, Graunke says. “It’s always about people and clients.”
The acquisition should be a great boost for DVC, which stumbled financially in the last two years as it sought to add Internet capabilities to the portfolio (December 1999 PROMO). Looking for a cash infusion, DVC first considered going public, then began talking to agency networks and larger promotion shops about an acquisition (October PROMO).
“Obviously, the public market has dried up for professional service firms,” says ceo George Valva who, with co-founder and chief business development officer Peter Dugan, will remain at the helm. “We explored those other opportunities as well. Lake gives us the autonomy, the ability to keep running the business, and believes very strongly in our one-line solutions philosophy. And they clearly have the financial wherewithal.”
The growth plan initially calls for domestic expansion, with presence on the West Coast and other key regions a priority, Valva says. (DVC currently has branch offices in New York City, Minneapolis, and Atlanta.) Acquisitions in Europe are on the horizon.
“We’ll try to replicate what we have here” by acquiring marketing agencies, technology companies, and healthcare marketing specialists, says Valva, to build off DVC’s three divisions: Communications, DVCi Technologies, and DVC ActiveCare. All purchases in those areas will be held under the new DVC Worldwide banner.
The company may also look to add capabilities in services currently outsourced like event marketing, customer relationship management, fulfillment, and “potentially even advertising agencies,” he says.
Option Time in Aspen Shortly before DVC was unveiled as the promotion industry’s newest consolidator, one of the original networks, Aspen Marketing Group, issued a media release saying that it had retained investment consultant Deutsche Banc Alex. Brown to “explore strategic alternatives.” Sale to a larger entity is a possibility.
“The wave of consolidation is kind of hard to ignore,” ceo Neal Vitale says of the move. “You can’t stay apart from where the industry is going. You have to be sensitive to where it’s taking people.”
Vitale joined Aspen in February 1999, about two years after the holding company was created through investments led by Brentwood Associates, Los Angeles, and began buying promotion agencies and marketing services companies. The network now includes 15 agencies, four of which – Luna Bacardi Group, B-12, Creative Source International, and M3 Marketing – were scooped up in the first half of 2000. The company expects gross revenues to reach $250 million this year.
The acquisition fires have cooled since spring, although Vitale says that fact is coincidental. “Nothing is off the table, because one possible [future] scenario is that nothing happens,” he says.
In this industry, however, “nothing” doesn’t happen very often.
