SLOW ECONOMY MAY SPUR LOW-COST AGENCY ACQUISITIONS

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(April 25, 2001) -- The economic slowdown will have a sharp effect on the merger and acquisition activity among agencies, according to a survey by investment bank AdMedia Partners, New York.

Advertising and marketing executives expect to make more acquisitions in 2001 at lower prices, as their agencies struggle with reduced revenues and profits, but they expect initial public offerings to take a dive in this down market.

The respondents expecting to make an IPO dropped to 4% in 2001 from 10% in 2000, and those expecting to even consider an IPO dropped to 6% from 14%.

The number expecting to be acquired stayed put at 19%, but those expecting to negotiate to buy a firm rose to 71% from 66% in 2000, and those who expect to complete an acquisition rose to 62% from 48%. Most of the acquisitions will likely be in the marketing services area, where 65% of respondents wanted to enter or expand operations. Interactive advertising and database management were next, with 60% and 53% of respondents, respectively, planning to enter or expand operations.

AdMedia's forecasts also cut the expected pricing of acquisitions this year. The average price paid for advertising agencies will drop to 5.5 to 6 times profits, from 6.5 times profits in 2000; marketing services firms will go for a range of 6 to 7 times operating profits, instead of 7 times profits; and online agencies will sell for 7 to 8 times operating profits -- if any exist -- from 10 times profits in 2000. -- Mercedes Cardona

Copyright April 2001, Crain Communications Inc.

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