CLARANT'S IPO, BUYOUT PLANS STUN INDUSTRY: Y&R'S SALE OF BRAND DIALOGUE OFFICE QUESTIONED

By Published on .

A major player emerged in the interactive business last week, taking industry watchers by surprise.

Clarant Worldwide Corp. filed for an initial public offering of stock June 7 and announced plans to buy eight Internet and high-tech companies, which include ad agencies and consultancies.

While the combined revenue of the proposed company would place it in the top 10 interactive marketing services companies, it's too soon to tell whether its roll-up strategy will be enough to guarantee success.

"It's a very perplexing turn of events," said Drew Ianni, analyst, Jupiter Communications, adding that the company "came out of nowhere."

COST: $315 MIL IN CASH, STOCK

Clarant, based on an offering price of $11 a share, expects to pay $89.5 million in cash and $225.3 million in stock to buy the services companies. The biggest acquisitions would be Align Solutions Corp., Houston, for $101.4 million; Potomac Partners Management Consulting, Reston, Va., for $60.8 million; and Young & Rubicam's Brand Dialogue, New York, for $50.7 million.

Clarant would combine eight scattered ventures that had 570 employees as of March 31; combined revenue last year of $49.9 million; and a loss, had the businesses been combined, of $83.6 million.

Clarant starts with an impressive client roster: IBM Corp. is the largest client, representing 12.4% of last year's revenue, primarily from a venture that provides data processing. Some clients may be lost because of conflicts: In telecom, for example, Clarant's clients include AT&T Corp., Bell Atlantic Corp., MCI WorldCom and Sprint Corp.

One of the big surprises in the Clarant deal is Young & Rubicam's decision to sell Brand Dialogue at a time when Web agencies are all the buzz. Y&R, which has agreed to steer client business to Clarant, will get a 13.4% stake in the new venture, making it the largest single shareholder.

Curiously, Young & Rubicam has kept the rights to the name Brand Dialogue and will operate Brand Dialogue offices outside New York. And while it's selling the staff and clients of its New York unit, which brought in most of Y&R's interactive business, it's conceivable that Y&R could start another New York Brand Dialogue with new clients and staff. In a press release, Y&R said it hoped to profit from Clarant's Web marketing and technical expertise.

Still, Mr. Ianni questioned whether selling the unit might dilute Y&R's Web strategy.

"If Young & Rubicam was owning a majority of this interactive venture, that would be another thing," he said.

What prompted the decision to sell Brand Dialogue was still unclear.

"It's probably safe to say Brand Dialogue wasn't blazing any new trails in the interactive services area," Mr. Ianni added, contrasting it to more aggressive interactive units, such as Leo Burnett Co.'s Giant Step and Ogilvy & Mather Worldwide's Ogilvy Interactive.

Clarant's companies offer a mix of services including Web site development, Web ad creation and media, e-commerce consulting and -- far afield from advertising and marketing -- data processing outsourcing.

1 NAME, IDENTITY, STRATEGY

The business plan is ambitious and risky: To cobble together eight disparate ventures into one company with "a single corporate vision, name, identity and strategy," according to the Securities & Exchange Commission filing. New shareholders will be asked to pay about $11 a share for a roll-up with no track record as a combined entity; it's less risky for the company's existing shareholders, who paid an average 3 cents a share for their stock.

It took awhile for Dallas-based Clarant to decide on a name: It incorporated last August as WEBONE, changed to Integrated Interactive, shifted in May to Clarant Inc. and then two days later to Radiant Worldwide Corp. This month it settled on Clarant Worldwide Corp.

Rivals, such as USWeb/CKS and iXL, have built businesses over time through acquisition. Clarant will be significantly smaller at the start than USWeb or iXL, but it will overnight become one of the bigger players in interactive marketing services.

The question is whether it can merge eight company cultures.

Last year iXL purchased tech company Ionix, Oak Brook, Ill., and Web agency Two Way Communications, Chicago, to form iXL, Chicago. Senior VP-Sales and Marketing Bob Gear, formerly president of Two Way, says integration takes hard work.

"IXL has put a lot of resources toward integrating these companies," Mr. Gear said.

Management meet regularly and all iXL offices follow iD5, a companywide strategy "so, internally we're all on the same page," he said.

IXL started an Atlanta office and then expanded, pairing shops that complemented each other, he said.

"It wasn't 'let's buy a bunch of companies.' [IXL was] very specific on how it approached the acquisitions," Mr. Gear added.

MANAGEMENT TEAM

Clarant will lean heavily on management consultants to pull off its prize: President-CEO Guillermo Marmol, 46, most recently a VP at tech concern Perot Systems, spent 18 years at McKinsey & Co. Exec VP Derek Reisfield, 36, a one-time management consultant, was formerly with CBS Corp., where he developed CBS.MarketWatch.

com and CBS.Sports-Line.com. And Michael H. Jordan, 62, the dealmaker who retired as CBS chairman-CEO in December and a McKinsey alumnus, will be Clarant's chairman.

But deep-pocketed executives don't equal success.

It's "venturing into very competitive and very crowded waters," Mr. Ianni said, adding that it's late in the game to go against players such as iXL, Modem Media-Poppe Tyson and USWeb/CKS. If Clarant's intentions "are purely to make this an investment play, I think [it'll] be disappointed because it takes some

In this article:
Most Popular