WPP Group, one of the most aggressive holding companies when it comes to snapping up digital-technology firms, is closing in on a deal to acquire Vancouver-based Blast Radius, one of the few large independents on the market. The 400-person shop, which has worked on campaigns for Electronic Arts, Nike's Air Jordan and AOL, brought in an estimated $60 million in revenue this year. Blast Radius does about 75% of its business in the U.S., but its headquarters in Canada have kept it slightly below the radar.
The move is the latest in a series of moves by ad-agency players to expand their digital capabilities, which started with Publicis Groupe's January acquisition of digital-marketing-communications company Digitas for $1.3 billion.
WPP has been taking smaller stakes in several companies as well as buying more midsize shops outright, focusing on those that specialize in web development, online-advertising production and building online communities. Earlier this year, it made a $649 million investment in online-advertising technology, buying 24/7 Real Media, whose assets include ad-serving, an ad network and a large search-marketing firm. In early September, WPP announced yet-another acquisition, Los Angeles interactive agency Schematic.
Like the Schematic deal, the Blast Radius pact, expected within a week, has been a long time in the making. Representatives from Blast Radius and WPP declined to comment.
The strategy for digital-agency acquisitions has been to pay a fee upfront and build in a giant earn-out on the back end to encourage top talent to stay put, according to executives familiar with these types of deals. And because of a shortage of digital-savvy marketing talent, competition for digital shops is stiff. While there are still digital-production firms with headcounts hovering in the 35- to-50 person range, acquiring an agency with the scale of Blast Radius is proving increasingly hard.
"It's a seller's market as there's just not enough supply of independent interactive agencies available at this scale," said Michael C. Seidler, CEO of Madison Alley Global Ventures. "There are a lot of buyers looking to increase their stakes in this high-growth market." Because of its expanding global client list, Blast Radius, led by CEO Gurval Caer, has been under pressure to grow to meet demands. Notable work includes a platform for the Electronic Arts video game "Madden NFL," which allows players to share and rate game strategies with other users.
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Contributing: Abbey Klaassen
What's Facebook's cost in Bill bucks?The chatter about Microsoft mulling a 5% stake in Facebook worth $300 million to $500 million is a sign of just how hyperinflated valuations have become. Consider, Facebook's revenue is an estimated $150 million this year, yet the price of that stake would value Facebook at a whopping $6 billion to $10 billion, less than a year after it turned down a $1 billion offer from Yahoo.
Of course, $500 million in Microsoft money is not all that much. This is the same company that paid $6 billion for aQuantive. (According to an executive familiar with the company's ad plans, Microsoft is also looking at Yahoo but said it's unlikely such an acquisition would happen.) The Facebook investment was reported by The Wall Street Journal, which cited unnamed executives and couched the claim by saying the discussions were still preliminary.
A Facebook investment could mean two things: It could signal how serious Microsoft is about data and targeting. It could also be a defensive play to keep Google out of the Facebook fold.
Michael Seidler, CEO of U.S. Corporate Ventures Group, called the stake's price tag "astronomically high" but said it is "indicative of the strategic value of a social-media network to Microsoft. ... It gives them strategic access at a relatively reasonable [total] price tag." In other words, $500 million is cheaper than $10 billion.
Regardless, it makes Interpublic Group of Cos.' investment in the summer 2006, when it received a 0.5% stake in Facebook in exchange for spending $10 million in advertising on the site, look like genius in its foresight. If Facebook is indeed worth $10 billion, a stretch according to many, Interpublic's stake would have quintupled in just over a year. And it got $10 million in advertising on the world's hottest social network to boot.