Acquisitions latest DTC side effect

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In the healthcare ad business, mergers and acquisitions are seemingly as widespread as the common cold in January.

For reasons ranging from consolidation of the pharmaceutical industry to the boom in direct-to-consumer advertising of prescription drugs, large consumer ad agencies are wheeling and dealing in a bid to position themselves as the healthy choice for drug marketers.

Last week alone, Cordiant Communications Group, London, announced a merger with Healthworld Corp., New York, in a deal valued at $185.4 million; Grey Healthcare Group, New York, acquired healthcare data company Consumer Health Sciences; and Lowe Healthcare Worldwide bought International Pharmaceutical Research.

Those moves followed the merger of consumer shop Merkley Newman Harty and healthcare agency Consumer Healthworks, both New York-based units of Omnicom Group, the week before.

And the run of acquisitions in the healthcare field appears far from over. Bob Schmetterer, chairman-CEO of Euro RSCG Worldwide, said Euro RSCG would soon announce the acquisition of another agency specializing in professional drug advertising. Earlier this year, Euro RSCG bought Jordan McGrath Case & Partners, partly to boost its healthcare business.

Lynn O'Connor Vos, president-CEO of Grey Healthcare, New York, said her shop is on the lookout -- and also being spotted.

"People come to us and say, `I've taken my business to a certain point and I'd like to open more doors,' " Ms. Vos said. "What we're looking for are hot executives, idea people who have started a business, gotten it to a certain size. We can then expand their business."

TARGETED AS GROWTH AREA

Ad industry executives have targeted healthcare as a major growth area in the next decade and large consumer agencies are taking pains to acquire shops that specialize in all aspects of the field, from designing clinical trials to carrying out a lavish DTC effort.

"I think the healthcare business is at least on par with the dot-com business, but probably far larger and more sustained over the next three or four years," Euro RSCG's Mr. Schmetterer said.

The acquisition binge appears to be a reaction to the shape of the healthcare marketplace, both current and future.

Pharmaceutical marketers are in the midst of an expected wave of mergers designed to bolster drug research and marketing muscle. That will only increase the need for agencies offering an array of marketing services, industry observers said.

"I think we're looking at new drugs coming on the market, we're seeing a lot of mergers out there, so I think you want to own whatever you can," said Lauren Rich Fine, an analyst at Merrill Lynch & Co.

Meanwhile, DTC advertising, aided by a loosening of the federal guidelines two years ago, has swelled and created some of the most lucrative ad accounts around. DTC spending totaled $1.3 billion in 1998 and is projected to reach $1.87 billion this year, a 44% rise, according to Scott-Levin.

GLOBAL MOVES NEXT?

So far, DTC Rx ads are confined mostly to the U.S., but industry observers think it will become an increasingly global phenomenon.

Under Cordiant, Healthworld will become a division of Bates Worldwide. Steve Girgenti, Healthworld's chairman-CEO, said in a statement that the acquisition marries Healthworld's DTC capabilities with Cordiant's media-buying power.

In September, Lowe Group made a similar move to provide a DTC-focused service by forming Lowe Consumer Healthcare, a combined effort of its consumer agency Lowe & Partners/SMS (since renamed Lowe Lintas & Partners Worldwide) and Lowe McAdams Healthcare, which specializes in advertising to medical professionals.

The Healthworld purchase also provides Cordiant with an entry into the professional ad market. The group has sought entry into that market for some time, according to Chairman-CEO Michael Bungey.

With its consumer healthcare group already generating about $30 million in revenue worldwide, the time was right for the Healthworld acquisition, he said, noting that building a similar group would have been "far too slow. This category is going at such a pace."

The purchases by Grey and Lowe of pharmaceutical research entities are aimed at giving marketers strategic help even before a product gets Food & Drug Administration approval. Consumer Health Sciences and International Pharmaceutical Research advise clients on how to conduct clinical trials with an eye toward how the drugs will eventually be marketed.

Contributing: Beth Snyder.

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