List Firms Discuss M&As; Mandel Teases Pending Deals

Aug 04, 2007 12:19 AM  By

(Direct Newsline) Put aside the 36 acquisitions infoUSA has made since 1990, and leave off the handful Primis Marketing Group Inc. has completed in two years: Lon Mandel, president and CEO of Specialists Marketing Services Inc. hinted at two purchases so fresh for his company that he wouldn’t even name the companies in question. All he would say during a List Day panel is that the expected the deals to close within the next 45 days.

To hear Mandel tell it, vendor mergers and acquisitions are at least in part a defensive move in response to activity on the client side. Consider the merged BMG, Columbia House and Book of the Month Club businesses. “One new entity has taken 60 million names out of my side of the business,” he said. “Boutique companies are having a hard time being profitable.”

Ed Mallin, president of infoUSA’s Service Group (formerly the Donnelley Group), has had his hand in a healthy swath of the list industry deals of the last decade, along with a smattering of e-mail, database, printing, and other capabilities that have been rolled into infoUSA. He, too, said that client consolidation, particularly in the catalog and publishing space, has spurred infoUSA’s acquisition efforts.

“We are in a mature business,” he said, meaning the list industry. But he was also talking about the catalog and publishing fields, both of which have fairly high entry costs. Individual companies in these spaces need equity and scalability to grow, he added.

Even private equity firms are getting into the act. Which makes sense, according to John Healy, president and CEO of Primis Marketing Group. “The cash flows in these businesses are very predictable. That’s the attraction. The multiples [of the annual revenue, which are used to calculate the purchase price] aren’t huge — these aren’t Internet companies. They are being bought at fair multiples.”

Healy is hoping that the spate of M&A activity in list and data services firms will start to slow. The focus, he said, has been on creating efficiencies, at the cost of innovation. “I hope the efficiency part will run its course and we will start to see innovation again.”

Not that there isn’t consolidation potential left. While credit firms appear to have a “tight oligopoly” among three major firms, according to Healy, he also indicated that compiled and cooperative data firms still have a few more moves to make.

Why now? Mallin reiterated infoUSA’s oft-stated position that many family-owned list companies no longer have younger generations interested in running them, or that they don’t have the cash flow to offer new services or capabilities, especially in the online marketing arena, their clients want.

Mandel, for his part, takes a careful look at the corporate culture of companies The Specialists acquires. “We want to acquire those that want to be acquired,” he said. “Those where key people want to stay on. The companies have to have the same client-centric focus we do.”

What else do acquirers look for? Healy weighs the needs clients express, which were among the factors that lead Primis to snap up data processing and modeling firms. “Clients started talking about online marketing, and we bought companies with online lead generation capabilities,” he said.

“When we do an acquisition, we look at customers and talent within an organization,” Mallin said. “Without those two, integration [into infoUSA] can be a challenge. We look to increase cross-selling or operating income in a company, and often we look at companies where that is where they are struggling.” In short, infoUSA looks to bring offerings diversification to its acquisition, Mallin concluded.

Mandel was bluntest of all. “We look to grow and be stable through core expansion,” he said. “Fundraising — we don’t do a lot of fundraising. That might be [a core competency of] one of the companies we are focusing on.”

What’s next? Well, Mandel did tease more about Specialists’ two pending acquisitions, but refused to give much detail about them, save for joking “although I’m sitting next to Ed [Mallin], I’m not doing a deal with infoUSA.”