Merge Splurge

ACXIOM CORP. now owns Direct Media and May & Speh. The U.K.’s Great Universal Stores owns Experian, which owns Metromail. Harte-Hanks, which ditched its newspaper businesses in favor of direct marketing, owns DiMark. InfoUSA, nee American Business Information, owns JAMI Marketing Services and Walter Karl and wanted to own Metromail. Snyder Communications owns everything.

Every time you turn your head, another direct marketing vendor-a printer, fulfillment house, lettershop, agency, list or data company-is buying another direct marketing vendor. According to New York DM investment firm Gruppo, Levey & Capell Inc., 277 suppliers were acquired in 1997, an increase of 23.7% over 1996. In the first half of 1998 alone, there were 230 such purchases. (Many of the acquired vendors are interactive agencies.)

In May, service bureau APAC TeleServices Inc., Deerfield, IL, acquired ITI Marketing Services Inc. for $155.2 million, reportedly making the company the nation’s largest teleservices firm, with revenue of more than $492 million.

In 1997, printer Mail-Well Inc., Englewood, CO, made six acquisitions and printer Big Flower Press Holdings Inc. made five, including agencies and a software maker, Columbine JDS System Inc. In May 1998 alone, Mail-Well, with revenue of over $1.3 billion, bought five commercial printing companies with combined sales of $140 million. In August, it acquired McLaren, Morris and Todd Ltd., a Canadian printer.

So why all this activity now? The easiest explanation is that many industries, especially fractured ones like DM suppliers, are consolidating. This is mostly because the stock market is so hot (or it was, anyway). Publicly traded companies are using inflated stock to buy smaller outfits to fill geographic or specialty niches.

It’s also happening because so many companies not traditionally in direct marketing-like packaged-goods makers and retailers-are now practicing direct response. It’s convenient for these neophytes to get all their services in one place.

This is all quite a flip-flop from a few years ago when suppliers were throwing overboard divisions that weren’t part of their “core competency.” The rallying cry was specialization. But competitive pressures are forcing end users to move their products to market faster and cheaper. So, for an easier supply chain, the vendors want to offer the exalted one-stop shopping (especially to provide new services for an existing client). And it’s easier to do that by buying a company than by building from scratch.

In 1996, Great Universal Stores, a British retail conglomerate, bought data company Experian for $1.7 billion. It already owned CCN, a U.K. supplier of credit data and other marketing information. As for Experian, chairman/CEO D. Van Skilling says the company’s two biggest acquisitions in direct marketing have been Direct Marketing Technology Inc., which it bought in April 1997 for $246 million, and Metromail, which Great Universal picked up in April 1998 for $845 million after a tussle for the firm with InfoUSA. Skilling says that Experian’s only 1998 acquisitions have been Metromail and a French transaction-processing business.

“Our acquisitions are designed to do one or more of three things: provide additional economies of scale and breadth of data and expand capabilities,” Skilling says. “Metromail helped expand our technical capabilities. It got us into mail production and further into the survey business, plus it had a good database marketing software capability.” It also had a lot of data.

In May 1998, Acxiom said it was buying May & Speh for $625 million, a transaction that was completed last month. Acxiom made six acquisitions in 1997, including list company Mardev Ltd. (from Reed Elsevier plc) and Buckley Dement L.P., which provides direct mail services to healthcare and pharmaceutical companies.

One of the biggest buying companies has been Snyder Communications, Bethesda, MD. CEO Daniel M. Snyder has never been shy about his desire to be the global leader in supplying direct marketing services. “Our goal is to be as complete and turnkey for our clients as we can,” he says. “Clients are looking for fewer and fewer vendors.” Snyder says he is staying away from commodity businesses like lettershops and going after data management, strategic consulting, systems technology and agencies.

A cynic might say these companies are on this buying spree only because the market is hot and they want the acquired company’s profits. But as Steve Layton, vice president of marketing services for cataloger Fingerhut, notes: “If they left them alone then they’re just buying because they’re profitable and they can get a return. But they’re blending them into the organizations.”

Says Harte-Hanks Direct Marketing CEO Richard Hochhauser, “When we make an acquisition we do so with the intent to broaden our capabilities or to enter a new market. We’re large and do a lot of things but we don’t possess internally all the solutions available, nor will we ever.”

Hochhauser says DiMark served a number of industries Harte-Hanks either wasn’t in or wasn’t in extensively, such as healthcare: “We had just a sprinkling of clients in healthcare. Once we acquired DiMark we had a big presence there. We had a stake in insurance, as did DiMark.” So now it has an even bigger share.

Experts say that all this talk about one-stop shopping and turnkey solutions sounds good, but while some clients put convenience first, others want the best vendor for the job, no matter that it’s not part of a mega-company.

“Any large direct marketer that sends out millions of pieces evaluates very carefully where it wants to buy its printing, fulfillment and lettershop services,” says Abbott C. Jones, managing director of AdMedia Partners Inc., which represents companies in mergers and acquisitions. “The consolidators want to encourage one-stop shopping. But marketers sharpen their pencils and make the decisions that are in their own best interests.” (AdMedia, which has worked for DIRECT parent Primedia Inc., represented Arnold Communications when it was bought by Snyder).

Could all this consolidation lead to higher prices for these services?

Both suppliers and marketers say the direct marketing business is too spread out and too entrepreneurial for a handful of companies to become large enough to do that. Acxiom/Direct Media and Experian are giants but haven’t taken over the market. The barrier to entry is low, especially with computers becoming so cheap, and prices are stable today.

Also, direct marketing services are not a commodity: Each company offers a little something different. Ad agency consolidation hasn’t meant higher prices there, because clients will pay what their favorite shop charges.

“I’d love to see the prices go up but I don’t see any signs of that happening,” says Experian’s Skilling, who adds that clients have responded positively to the Metromail and Direct Marketing Technology acquisitions.

From the vendors’ point of view, these deals offer economies of scale. “Consolidation makes a hell of a lot of sense,” says Geoffrey Batrouney, of Estee List Services Inc., New Rochelle, NY. “There are hundreds of millions of dollars in wasted costs that make their way to the selling price.”

Another thing everyone agrees on: Though a weak stock market could slow it down, the merger-and-acquisition craze among direct marketing vendors will continue.