After less than six month as Margeotes/Fertitta & Pavlika, the direct unit now becomes Pavlika Chinnici Direct, with $60 million in billings and more than 50 employees. The operation is the brainchild of 20-year direct marketing veteran Holly Pavlika, who came to Margeotes in March to lead its direct marketing arm.
As general and marketing services agencies alike try to build up their direct marketing capabilities externally -- since January 1999, about 20 independently owned U.S. direct shops have been sold -- Ms. Pavlika knew that Michael Chinnici, then president of Chinnici Direct, was exactly the partner she wanted.
"It took her about 5 minutes to come up with Chinnici," said George Fertitta, president of Margeotes.
ROOTS IN CREATIVE
"We are pretty synergistic in our backgrounds and what we've done," said Ms. Pavlika, explaining that she and Mr. Chinnici, who's CEO-chief operating officer of the combined shop, both started out on the creative side of the agency business.
"We want to stand for premier creative," said Ms. Pavlika, president-executive creative director of the new agency. "A lot of [direct marketing agencies] don't really talk about creative. They talk about relationship marketing and database marketing and [customer relationship management], but nobody talks about being really creative about things."
Chinnici adds critical mass -- more than 30 employees and close to $40 million in billings -- to Margeotes' direct division. It also brings clients such as Chase Manhattan Bank, with a $20 million budget, and Consumer Reports to Margeotes/Fertitta & Pavlika's roster that included Choicelinx, "NFL Sunday Ticket" and Sotheby's. The operation's newest client, online event photography company Cyberpix, is the agency's first win from a joint pitch.
The acquisition fits with the larger strategy of Margeotes parent Maxxcom, a Toronto-based marketing communications company whose "Perpetual Partnership" philosophy hinges on acquiring majority stakes in entrepreneurial agencies while allowing them to retain management independence.
"The idea of selling a percentage of your business and still maintaining an equity stake but having the resources to grow is a very appealing model," said Mr. Fertitta, who sold a majority stake of his agency to Maxxcom in 1998.
"Their philosophy, which is why Michael [Chinnici] wanted to do this as well, is, if they buy agencies, it's because there's an entrepreneurial spirit there," Ms. Pavlika said. "They let those entrepreneurs do what they do best rather than dictate what they're doing."
It's that model that attracted Mr. Chinnici.
"I didn't want to be swallowed up by one of the large holding companies," he said. The merger allows him to hold onto creative and managerial freedom while leveraging Maxxcom's financial muscle for further external expansion.
"When we want to push the envelope into areas we don't know [such as specializations in direct-to-consumer pharmaceutical marketing], I think that's where the acquisition opportunities will be great," Mr. Chinnici said.
Maxxcom, whose U.S. buying spree began with its Margeotes acquisition two years ago, now generates 75% of its total revenue in the U.S. Of the 12 purchases it made in 2000, 10 were in the U.S., and the Pavlika/Chinnici deal is the third direct marketing acquisition for Maxxcom in the past year. It bought Accent Marketing, Louisville, Ky., in November and Targetcom, Chicago, in July.
Maxxcom's latest buy, however, came outside the U.S. The company made its first non-North American acquisition last week via a 60% stake in integrated communications agency Interfocus Network, London, purchased from the Lowe Group.
ADDING CRITICAL MASS
"Personalized communication is a growing importance for our industry," said Maxxcom President-CEO Beverly Morden.
Direct marketing revenue in the U.S. rose 15.6% last year to $2.49 billion.
"Direct marketing has a long history of establishing one-on-one relationships with customers, and we want to be sure that we have that capability within our Maxxcom portfolio," Ms. Morden added. "As George [Fertitta] evolved his strategic plan, he identified the need to add critical mass in direct marketing and one other key area, and the acquisition of Chinnici was his realization of this strategy."
Increased specialization in that other area -- public relations -- is pending, with Margeotes' imminent acquisition of a U.S.-based PR agency.
"Ten years ago, we would view direct as a necessary evil; today, we view direct as a full partner and a necessity," Mr. Fertitta said, adding that it's now a critical component for the general agency's clients as well. "If [a client's] full marketing budget is $30 million to $40 million, probably 20% to 30% could be direct."
As such, much of Pavlika Chinnici Direct's future growth will come organically.
"As word is getting out more and more that there's a strong direct arm now," Mr. Chinnici said, "we're seeing more opportunities in more places with existing Margeotes accounts."