Ad groups court small but thriving direct agencies

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Prospective clients aren't the only ones calling on independent direct marketing agencies.

Calls to direct shops are frequently coming from general agencies or ad groups interested in buying the agency.

"We get a call at least once a month from large agency groups to companies that literally manufacture ball bearings and are diversified holding companies saying, `How about coming and joining us,' " says Jay Miller, CEO of Chicago-based TargetCom.

NOT A SECOND FIDDLE

Mr. Miller, whose company saw 1999 revenue jump almost 60% to $16 million, says "we don't want to be second fiddle within a group, and we like being a success within the relationship marketing world." TargetCom added 18 clients and launched two divisions last year to tap into the technology market, Bang!Zoom and Etelligence.

TargetCom provides direct and relationship marketing services to such clients such as Tribune Co., Lucent Technologies and Sears, Roebuck & Co.

Since January 1999, Advertising Age has noted the sale of 17 independently owned direct marketing agencies in the U.S. and another 15 marketing services companies with direct capabilities.

Euro RSCG Worldwide, New York, is responsible for a number of these, including its acquisition of Devon Direct Marketing & Advertising, Berwyn, Pa., Tyee Group, Portland, Ore., and Snyder Communications, Bethesda, Md., owner of Bounty SCA Worldwide, the No. 10 marketing services agency. Brann Worldwide, No. 7, also came with the Snyder purchase, but remains among diversified agencies outside the Euro network in parent, Havas Advertising.

"We were a late entrant in that category, and the acquisitions are a way of playing catch up," says Daniel Morel, CEO of Euro RSCG's marketing services organization, Sales Machine. "Our philosophy is to offer clients a multimedia and neutral offering, an entire business solution, not just talk about it."

Last year, 19 out of 31 Euro RSCG acquisitions worldwide were marketing services businesses, he says.

As multinational clients demand more cross-marketing programs, Mr. Morel predicts small direct agencies will feel the need to join a larger shop though maintain an entrepreneurial spirit.

"Euro RSCG doesn't take a cookie-cutter approach with the agencies they acquire," says Spencer J. Brown, Tyee president-CEO. "They want agencies that can operate under the network umbrella."

But Pierre Passavant, director of New York University's Center for Direct Marketing, is skeptical that small shops purchased by large agencies will be able to maintain their creative independence: "It may happen during a honeymoon period, but eventually, whether it's a question of client conflict or the acquiring agency's view on things, eventually you are told what to do." He sees the big growth in small direct shops and the penchant for acquisition as part of a cyclical event in which agencies aggregate and consolidate to meet needs of multinational clients. This consolidation simultaneously creates frustration over the lack of independence, leading young executives to depart for smaller shops.

"There is a human condition since time began that makes people say, `This place is too big, I'm getting out of here'," Mr. Passavant says.

SMALL SHOPS DELIVER

Even small direct groups are getting bigger.

Roska Direct, Montgomeryville, Pa., has hired 10 additional employees and seen annual billings jump to an estimated $50 million since January. In '99, the agency posted gross income of $6.3 million, up 37.8%, on billings of $43.8 million.

"Clients [want] a direct agency that can deliver strategies that are designed to bring measured results, combine the strategy in print and mail and [direct response TV] and take the strategies and move them onto the Web," says Rick Moore, Roska's president-chief operating officer. "They're not finding it in the other agencies."

Like Mr. Miller, Mr. Moore also fields several calls a month from general agencies interested in bolstering their direct capabilities. "General agencies are really scratching their heads to figure out, `Should we build or buy?' " Mr. Moore says. "With the dearth of people out there, `buy' is looking pretty attractive."

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