Advertising giant McCann-Erickson, which is owned by the Interpublic Group, one of the world's largest organizations of advertising and marketing communications companies, acquired Atlanta-based Fitzgerald & Company.
The New York headquartered Jack Morton Company, which is also owned by Interpublic and specializes in interactive media, live events, entertainment and environmental design, acquired locally owned O'Connor-Burnham.
Los Angeles based Todd-AO, providers of global post-production services for film and video, acquired Atlanta's Editworks.
Rapidly growing interactive services company, iXL, was formed through the acquisition and merger of Atlanta companies, FLOYDesign and Creative Video, among others.
Locally owned Kor Media, a full service digital media and production company, merged with Area 9 and Austin's Barbed Wire, Inc.
Worldwide internet strategy and professional services firm, USWeb acquired Atlanta's Inter.Logic Studios.
Consolidation seems to be as much the trend here as it is nationwide. According to those who've been through the process, the best predictor of a successful union is finding a compatible match that offers resources, growth potential, and autonomy.
"It's a fact of life," says Dave Fitzgerald, Fitzgerald & Co. "Communications companies are consolidating in response to the clients, it's a natural progression of business. We now have trillion-dollar global banks, and they need big agency attention and worldwide resources. They won't be interested in a 20- person shop in Atlanta."
Steve Mochel, of the Jack Morton Company, agrees, "Clients are looking to centralize marketing activities. They want everything under one roof, and they want to work in Paris as easily as in Atlanta. This is definitely a trend that will be around for a while."
"In the interactive arena, the small shops are losing jobs," says Jim Rocco, of iXL. "They don't have the financial capitalization, the depth or the firepower to handle big jobs, like $2 million web sites that tie-in a global network of dealers. In our business, I believe we will see three to five main players within the next three years."
"One has to look at the possibility of merging or acquisition from all sides," says Britt deBie, of Todd-AO/Editworks. "First and most obvious, will this be good for business?"
"Business owners should always explore all of the options available," says Joe Sawin, of Kor Media. "Merging with another company might offer something you don't have that would be difficult to build internally. But, to be attractive for acquisition, a company has to be profitable and have a good, diverse client base. A great portfolio is also important."
"Acquisition is unlikely if the company is not operating according to sound business practices," says Cary Siegel of USWeb. "A company needs sound legal and financial advice, and every professional services firm should have its financials audited. The acquiring company will want to see an objective opinion of the business over a period of time."
Also, Rocco advises, "Look in the mirror. Is your management team solid? Do you have solid clients? What do you need from an organizational standpoint? As a business owner, how good will you be as a senior manager? If you are looking to be acquired, it's a mistake to view the acquisition as the finish line, it's the start line. At iXL, we look for strong management that we can build on to be our partners."
He adds that a company looking to be the acquirer must have financial capital in stock and cash, as well as a roll-up strategy.
Mochel agrees, adding, "What's most important is how the cultures of the two companies fit. You need to ask yourself if you like these people, and the way they do business. How do we complement each other? If there is no synergy, there is no reason to talk about money."
Thorough research and recommendations from people you know and trust are also important, according to deBie. "We did our research on the 'purchaser,' Todd-AO, and relied on their reputation and also on word-of-mouth referrals from valued sources."
"If possible, test the relationship by forming a strategic partnership or alliance first," says Sawin. "Work on projects together and test the synergies. With this type of informal arrangement, you can get out any time."
Rocco and the others advise caution when dealing with business brokers. "This is a critical time," he says. "You don't want to put your business in the hands of someone you don't know, learn as much as you can and make the final decision yourself. If you go into it blind, you will leave money on the table."
Siegel's advice is, "Say no to the first offer. If you are getting bites from other companies, your first choice will come back. You have to remember that in a service business, what's being bought is people, and the value is subjective. Base your asking price on market potential rather than current revenues."
Most acquiring companies prefer to exchange stock rather than cash, although sometimes it is a combination. Rocco says, "If you believe we have a growth strategy, then you believe one share of iXL stock is worth more than one share of your company's stock. You have to believe in our ability to take your company to a higher private market valuation, or to the public market, where you can get 12 to 15 times your current value.
On the other hand, deBie points out, "One doesn't always know what the value of the stock will be down the road, so cash might be the best option to ask for."
Fitagerald employed an extensive communications plan that had the motto, "you can't over communicate."
Unfortunately, he had a lot of ground to cover quickly because word of the acquisition leaked out, and some employees heard about it "on the street."
"I met with them and told them everything I could at that point, that we were going to be acquired, and that I was sorry they had heard about it elsewhere first. I assured them I was looking out for their best interests."
When he could talk about more details, he held an open meeting and promised 24-hour turnaround for e-mailed questions. He also established a "vent box" for anonymous questions and answered all within 24 hours via e-mail.
With McCann-Erickson's Atlanta office, Fitzgerald established a post-merger integration task force comprised of six people from each company. These employees represented the agencies' various disciplines, such as media, public relations, creative, etc. Their mission was to make sure the culture of the two companies merged seamlessly. The group was renamed the Culture Club and met once a week to raise issues and develop the best practices for each discipline.
"In addition, I made the commitment to employees to make decisions quickly," he says. "Everyone is change averse, you can mitigate the fear by making quick decisions."
Fitzgerald followed-up with regularly monthly meetings. "There is no such thing as being redundant," he advises.
On the client side, the merger or acquisition news is usually greeted with enthusiasm. Fitzgerald says, "They were 100 percent supportive. They were delighted with the additional resources and so were the McCann clients. In fact, almost immediately, we got an $8 million piece of business we would not have had without the acquisition."
"We believe in the managers' ability to be partners," says Rocco. "Our aim is to grow the business on their shoulders. We recommend changing the company name because it's easier to have one brand, and we might add managers if necessary. But, we've had 23 acquisitions, with 23 ex-presidents, and no one has left so far. All of them have an important role, which was clearly discussed during the acquisition process. They all are motivated."
"Management is the reason a company is successful," notes Siegel. "We keep the management in place, principles become partners, or managing partners. We provide a strong incentive for them to stick around for a long time."
So, what have the acquiring companies gained? For most, a sizable share in the Atlanta market justifies the acquisition.
"Atlanta is quite a market," notes Mochel. "There are a number of major global corporations here. As these companies' needs grow, the agencies and service companies here need more resources."
"Along with enhanced earnings, Todd-AO gained market share in the Southeast," says deBie. "They see a growing, emerging market in Atlanta rather than one that's saturated. They are looking for other opportunities to expand here with other post-production companies. They put their faith in what's happening here, and during the past 18 months, it's proven to be a good thing."
Stay tuned for more nuptial bliss during the coming months