Little Gems: Lang, CMA merger sets new model for small shops.

There’s a new diner at the feeding frenzy of conglomerates gobbling up promotion agencies. This time, mid-sized shops are being served.

GEM Group, an Atlanta-based agency formed in March by the merger of Lang & Associates, Toronto, and Corporate Marketing Associates, Dallas, is offering a different proposition for agencies that need to grow more before being acquired.

GEM – an acronym for Global Experiential Marketing – is a confederation of agencies too small to get a good percentage of earnings if they sell. By banding together, the thinking goes, agencies can pool their expertise – and revenues – and command a bigger price in a few years.

GEM began shopping for partners and clients shortly after its March launch. Agencies get GEM stock (but no cash) to merge with and adopt the GEM name. By throwing their business into a communal kitty, principals stand to earn more when GEM eventually sells or goes public.

“We want to capture the best talent at its emerging phase,” says chief operating officer Keith McCracken. “Companies at the right stage can join something bigger without having to sell, so they can continue to ride the horse.”

Small shops that could sell for six- to seven-times earnings could share in a pool as large as 30-times earnings as part of a bigger network. With $20 million in revenues now, GEM is ultimately aiming for $100 million or more. GEM claims to have no timeline for a sale or IPO.

“No one joining has a short-term sell-out strategy,” says McCracken, who plans to stay with GEM for five years. “Ultimately, we’ll get to the point where acquisition rather than merger makes sense.”

Lang and CMA starting talking last April. Each had been courted by several holding companies offering seven- or eight-times earnings, says ceo Rick Jones. “We were a tweener, squeezed by boutiques putting senior people on accounts and big agencies. We needed to get bigger ourselves. We think there are a lot of small agencies that have been courted but don’t like the way holding companies are organized, or who don’t like the margins they’re offered.”

GEM is negotiating with about six agencies. (Ironically, talks with two shops ended when they were both acquired by holding companies.)

GEM tells candidates “come help us grow for five years and get some share value,” Jones says. “You’ve got to be willing to give up your name and you need to be financially stable and best of breed. We want people who still want to work.”

GEM execs plan four fields of operation: communications, marketing, insight, and intercept. Each division is run by a separate president. Account groups sell all services and access each discipline as needed. GEM aims for multi-service assignments with 20 global clients. Current clients include Coca-Cola, Bank of America, Sears, and UPS.

Jones had been head of three-year-old CMA, an Atlanta event and sports marketing shop. He’s a veteran of the Washington, DC-based sports marketing agency Advantage. Chief strategic officer Chris Lang ran 20-year-old Lang, a Toronto-based sponsorship and events agency. McCracken, a longtime associate of Jones, joined as chief operating officer after a brief stay with Morristown, NJ-based DVC’s Minneapolis office. CMA chief financial officer Ronna Campbell keeps that job at the new shop.

GEM has a staff of 117 and offices in Chicago, Dallas, Montreal, Sydney, Tokyo, Toronto, and Vancouver. The group is shopping for Internet, p.r., research, field marketing, measurement, sampling, and direct marketing firms. GEM’s criteria are geography, discipline, and critical mass. “Another promotion agency in the right city might make sense,” McCracken says.

“We have to create a mystique about the GEM group so great players want to work here,” adds Jones.