The two companies, rumored to be merging for several months, will continue to operate separately, but combine resources such as accounting systems, human resources and recruiting, to take advantage of economies of scale.
Terms of the deal were undisclosed.
DOESN'T MAKE SENSE TO COMPETE
"Now we will want to help each other succeed instead of just looking out for ourselves," said Craig Kanarick, Razorfish chairman, solutions director and co-founder with CEO Jeff Dachis. "Initially it won't make sense to compete with each other. Either one of us goes in there to pitch or more likely, we would field a superstar team from both sides."
Razorfish counts among its clients CBS, IBM Corp., America Online, Time Warner, Charles Schwab & Co. and Sony, while Avalanche's clients include KPMG, Cosmopolitan, Warner Music Group, Carnegie Hall and others.
Mr. Dachis takes over as Avalanche CEO and the other executives retain their positions, with the exception of Avalanche co-founder and former CEO Michael Block, who has left to pursue other interests. Avalanche's other co-founder, Peter Seidler, continues as chief creative officer.
NO LAYOFFS EXPECTED
Avalanche's director of operations, Troy Tyler, will assume the role of exec VP and chief operating officer. No employees will be laid off as part of the buyout, the executives said. In fact, both agencies are looking for more employees-Razorfish has 12 job vacancies and Avalanche has five.
Mr. Seidler said Avalanche had been searching for a partner for about six months.
MONEY ALONE WON'T DO IT
"It was just really clear that in order to grow the business, we needed a strategic partner or an investor," he said.
"We considered the investor option, but it was really just an intellectual discussion because [investment alone] is just inappropriate for this medium. Money alone won't do it."
Peter Storck, group director of online advertising at Jupiter Communications, said he sees the Razorfish and Avalanche combination as a good design consolidation because neither offers media buying or marketing systems integration.
"Maybe they're just looking to create a place in the design niche or maybe this is just a stop on the way to being bought by a larger agency," he said.
IN THE `TOP GROUP'
Marc Johnson, another online analyst at Jupiter, added, "In the design space, they are in the top group producing quality design work. This is not a huge deal along the lines of TN Technologies and Modem Media," he said.
"But it is the type of thing where you can draw the conclusion that it's hard for independent shops to exist by themselves. It's a tough row to hoe and thus the partnering."
The two companies plan to trade expertise and experience to benefit clients and employees.
One of the first tasks will be to go through both client lists and find out if they can share technology resources and expertise, Mr. Dachis said.