Direct shop gets 4 times what it paid to break free of Cordiant
Interpublic Group of Cos. last week agreed to pay $100 million for DraftDirect Worldwide, almost quadruple the $27.2 million DraftDirect management spent to buy back the agency from Cordiant only nine months ago.
The high price reflects the speed with which direct marketing has gained stature. It also underscores that agency sellers now have a degree of leverage unseen since the 1980s' megamergers.
For Chicago-based DraftDirect, the payoff is a reward for tremendous growth. Revenue and billings rose 33% last year, to $79 million and $633 million, respectively.
STRING OF ACQUISITIONS
The deal is the latest in a string of acquisitions of direct marketing services agencies, which are fetching premium prices relative to ad agencies. Two recent deals topped $100 million and had left DraftDirect as the largest independent: Harte-Hanks Communications' $155 million purchase of DiMark, Langhorne, Pa.; and Heritage Media's $195 million acquisition of DIMAC, St. Louis.
DraftDirect Chairman-CEO Howard Draft said eight different groups had approached him since last fall.
Interpublic has sunk close to $120 million into acquisitions this year after spending $140 million last year. It will operate DraftDirect as a fourth global network and invest in its global expansion.
Till now, Interpublic has lacked the direct marketing strength of holding companies such as Omnicom Group and WPP Group.
"Now we'll have the money and wherewithal to become a worldwide partner," Mr. Draft said. The 18-year-old agency already has 31 offices in various countries. Current management will stay in place.
DraftDirect's clients include BankAmerica, Bell Atlantic Corp., NordicTrack, Sprint Corp., Time Warner Cable and the U.S. Department of Defense.
The deal, while proving to some that London-based Cordiant should never have let go of DraftDirect, put some change in Cordiant's coffers--about $18 million. A clause in Cordiant's agreement gave it the right to collect almost 20% of any future sale.
Copyright May 1996 Crain Communications Inc.