The company last week announced how it will integrate pending acquisitions Adsmart and Flycast Communications Corp. But it will be proceeding minus at least six mid- and senior-level executives who have exited Adsmart and Flycast. Top to leave is Flycast Chairman-CEO George Garrick.
More departures could be in the offing, said a former executive of one company affiliated with CMGI, majority owner of Engage.
"We will see a mass exodus out of Engage companies over the next two weeks," as some stock-option vesting periods end and employees decide to take their money and run, said the executive, who has close ties to Engage.
MORE COHERENT PACKAGE
Engage last week announced a restructuring that integrates its online ad services into a more coherent package. Engage formed three new business divisions that incorporate Adsmart and Flycast. The divisions, Engage Media, Engage Business Media and Engage Enabling Technologies, plus wholly owned subsidiaries AdKnowledge and I/PRO, will operate under the Engage umbrella.
The consolidation is a departure for Internet investor CMGI, which will own about 87% of Engage once CMGI sells Adsmart and Flycast to Engage, a deal expected to close in late April or early May. Flycast, which CMGI bought in January, and Adsmart, which CMGI already controlled, are Web ad networks. AdKnowledge is an ad-serving and analysis company; I/PRO analyzes Web traffic. CMGI had followed a non-integration approach, letting companies it invested in or acquired stand alone.
The Adsmart and Flycast names will likely go away this summer, said Betsy Zikakis, VP-marketing at Engage.
"CMGI did look at how they could leverage all these investments and found that if they put us together, we'd do better as a unified company, rather than three separate companies," Ms. Zikakis said.
Among those said to be exiting are Flycast founders Larry Braitman and Rick Thompson. A Flycast spokesman said they are "at the company and still working with Flycast." But he would not say whether they were employed by the company or state their titles.
Greg Stuart, former VP-business development at Flycast, left in November after CMGI announced it was buying the company. Now a venture partner with Internet investor iMinds Ventures while he looks for a CEO post at an Internet company, Mr. Stuart cited a crowed business-development group for leaving. "There wasn't a job for me. There were 11 (business-development) VPs," he said.
"There have been a few key departures," said Chris Hansen, an analyst with Banc of America Securities. "Losing key execs from acquired companies is definitely something investors should watch, as a significant amount of their value is tied up in their employees."
One industry insider pegged Adsmart's annual turnover rate at 15%. Engage President-CEO Paul Schaut said it was less than 5%.
"We are very comfortable with the attrition rate. It is below normal at both the executive and under-level positions," he said.
Talent departures are not surprising, given duplication of jobs, the desire of people to run their own show and a hot job market.
"The turnover rate is high at all Engage companies because there is a lot of duplication of roles," said the former CMGI company executive.
The stock market wealth of Flycast employees also could have motivated some to leave. "Easily 50% of Flycast people are millionaires, if not more," said one executive close to the situation.
Engage's Mr. Schaut argued incentives remain to keep good people, and he's not concerned about the departures.
"I am comfortable that we continue to retain and motivate the teams that are on board," he said. "The reason people stay is we motivate them in several ways: Do they feel part of a winning team? Are they empowered to succeed in their jobs and to be rewarded? Options are a very powerful reward mechanism."
But other executives close to Engage cited low morale, culture clashes and the increasing power of Mr. Schaut as other factors in the departures; Mr. Schaut said a strong team remains in place.
"The sky isn't falling," he said. "We are very comfortable and confident in our team and our continued success."
Engage is CMGI's play to challenge ad-serving and ad-network leader DoubleClick. But Ms. Zikakis contends Engage is different because it caters to the marketer; DoubleClick's client base includes Web publishers. "We wanted to create a company that did not replicate what DoubleClick did," she said.
As part of its restructuring, Engage announced several top appointments: Lyn Chitow Oakes, former exec VP-chief operating officer of Flycast, is exec VP-general manager, Engage Media. Joanne Currie, VP-marketing at Adsmart, is general manager, Engage Business Media. Kimo Kong, former VP-North American sales at Engage, is general manager, Engage Enabling Technologies. Jim Alla, previously VP-sales at AdKnowledge, is exec VP-sales at Engage. Peter Nicas, formerly exec VP-strategy and business development at Flycast, is exec VP-strategy and business development for Engage.
CONFERENCE CALLS AT 6 A.M.
People close to the situation contend CMGI has done a poor job of maintaining employee morale at the acquired companies. For example, Engage managers on the East Coast have had conference calls with Flycast salespeople at 9 a.m. -- 6 a.m. at Flycast San Francisco headquarters, one executive close to the companies said.
"When a company gets acquired and people have spent their lives with these companies, reality sets in and you think, `Oh my gosh, my identity's going away,' until you can reshape a new identity," said Ms. Zikakis. "Now we are developing a new identity. I'm sure there are individuals in the company that have lower morale than others, but it's the typical transition a company goes through when it is acquired. This is real, classic, textbook change."
Other executives close to the situation said a significant culture clash in work environments and pay inequities between Engage and Flycast also are factors in the departures.
"There is definitely a different culture [at Flycast]," admitted Ms. Zikakis. "They have a more fun culture. Adsmart is more like [Engage]. We are trying to adopt some of the fun West Coast culture into Engage. We feel we can benefit by incorporating some of [Flycast's] culture into ours."
Under Engage's January agreement to buy Adsmart and Flycast, Flycast's Mr. Garrick and Adsmart President-CEO John Federman were to join Mr. Schaut in the office of the president.
Now, however, it's evident Mr. Schaut is in control.
`CLEARLY THE TOP CAT'
Having Engage "take the lead because it had the higher market [capitalization] . . . made the most sense for investors," said one executive close to the companies. "Paul Schaut is clearly the top cat over there."
Mr. Schaut denied the departures reflect negatively on the roll up, saying they were "planned transitions."
Mr. Federman was named exec VP-worldwide sales and business development of Engage in March, the same month Mr. Garrick left Flycast.
Mr. Garrick now works on his private venture company and consultancy, G2 Ventures, and is pursuing joining boards of several companies that have yet to do an initial public stock offering. "Once you are a CEO of a company, you enjoy being a CEO. The buck stops with you. It's your vision," he said. "As soon as you become acquired, that's no longer the case."
While Engage has settled on its management team, the integration issue remains. Last month, a researcher surveyed perceptions about Engage and its affiliated companies. The survey asked whether respondents -- including reporters and consumers -- regarded AdKnowledge, Adsmart and Flycast as assets or detriments to Engage. Another question was, "What do you see as the biggest challenge to relaying a unified message about Engage?" Results were unavailable.