Bisceglia and business partner Philip de Roziere are announcing today the formation of 3i L.L.C. Bisceglia is chairman-CEO of 3i; de Roziere is president-CFO. The holding company has already closed its first acquisition: Des Moines, Iowa-based integrated marketing communications firm CMF&Z Marketing Communications, which counts John Deere Credit among its clients.
3i plans to have two more acquisitions completed by mid-February. Bisceglia foresees owning five or six agencies by the end of the year. The goal is to create a b-to-b network of agencies with $500 million in billings, $60 million in revenues and a nationwide presence. It's a bold plan, and a risky one.
âI applaud what they're up to,â said Rick Segal, chairman of HSR Business-to-Business.
Bob Huntington, managing director of AdMedia Partners, said: âThere have been several attempts to put together a [b-to-b agency] roll-up, which is what this sounds like, and none of them have been successful to my knowledge.â
Bisceglia has a convincing track record. In 1991, he bought a suburban Chicago agency with $30 million in billings. He renamed the agency TFA and transformed it into a tech marketing communications firm with clients that included Motorola Inc. and CMGI Inc. By 1998, he had boosted billings to $107 million and sold the agency to Leo Burnett, which he left last year-but not before helping TFA reach $210 million in annual billings.
De Roziere also brings considerable mergers and acquisitions experience to 3i. As VP-mergers and acquisitions with Koch Industries Inc., he managed transactions with an aggregate value in excess of $5 billion.
3i-which stands for innovation, integration and investment-intends to focus on the largely ignored meat-and-potatoes portion of b-to-b marketing. In particular, it will target integrated marketing communications companies with $2 million to $30 million in annual revenue and focus on three key verticals: agribusiness, chemicals and manufacturing. A fourth vertical will be added later in the year; it will likely be technology.
Bisceglia has a non-compete agreement with Burnett that expires in the first quarter of this year. âMarch 12, but who's counting,â Bisceglia said.
Benefits of scale
Once within the 3i network, agencies will benefit from economies of scale and the ability to share knowledge.
âThese are agencies looking to come up to the next level,â said Bisceglia, who believes he can build a network that will be able to compete for large industrial advertisers, such as DuPont, that are currently clients of the large consumer-oriented holding companies.
In the short term, the individual agencies will maintain their brand names. âEventually, we'll promote the 3i brand when appropriate,â Bisceglia said.
The ultimate vision for 3i is to combine the reach of the multinationals with the domain knowledge and passion of the entrepreneurial types who run most b-to-b agencies. This vision also includes a âliquidity event,â which Bisceglia and de Roziere see as an initial public offering or a sale to one of the consumer-oriented holding companies.
Examples exist of small marketing companies successfully being ârolled upâ and sold in one bundle to larger holding companies. One success story is Lake Capital's backing of Lighthouse Global Network, which acquired smaller marketing companies and was sold as a single entity last year for $592 million to Cordiant Communications Group plc.
âIf they have a focused strategy and the financial people have the experience and the know-how to buy and bring together companies, then maybe it could work,â said AdMedia Partners' Huntington, who nonetheless is skeptical of a b-to-b agency roll-up.
In de Roziere, 3i may have the financial experience Huntington mentions. For his part, de Roziere says this is an opportune time to be buying b-to-b firms because valuations are depressed in the current recession, which has hit b-to-b marketing exceptionally hard.
Less volatile than consumer
HSR's Segal is bullish on the prospects for a b-to-b network. âIt [b-to-b] is less volatile than the consumer side of the business,â he said. âIt is an enduring segment that I continue to believe, notwithstanding the current cycle, is in position for long-term growth.â
Segal added that clients that are too large for traditional b-to-b agencies yet small enough that they get ignored at the consumer-oriented multinationals would flock to a b-to-b network. âWhether it's an agency network or a larger scale agency, there is a need for an agency organization of scale to emerge in the business-to-business segment,â he said. âIt is a relatively significant market need.â
Recent attempts to build ad agency networks in opposition to the WPPs and Interpublics of the world and with a significant b-to-b presence have struggled. Earle Palmer Brown bought several tech firms on the East Coast in the late 1990s, but by the end of 2000 it needed financial help from Swiss media conglomerate PubliGroupe. Earle Palmer Brown is now part of Panoramic Communications.
Maxxcom, a unit of MDC Corp. Inc., also has fallen on hard times. In a series of stock deals, it bought a handful of U.S. agencies with strong b-to-b accounts. Colle & McVoy, bought in 1999, was one of the key acquisitions, but by the spring of last year its head count, thanks in part to client losses, was down nearly 25%, according to published reports. As of Jan. 9, parent company MDC's share price had plunged more than 65% from its 52-week high.
When it made its acquisitions, Maxxcom ensured that the agency principals maintained an equity stake in the performance of their agencies. The struggle with buying an entrepreneurial business such as a small b-to-b agency is maintaining that character once the acquisition is completed.
Pete Kovac, president-CEO of NKH&W, doubts the ability of a buyer to maintain an entrepreneurial culture after an acquisition. It is especially difficult when different agency cultures must then be merged together, he said. âThe core culture is key,â he said. âWhen you start slamming cultures together, make sure they're in harmony or you're opening the door to disaster.â
Kovac, who is intrigued by the idea of creating a nationwide b-to-b network, isn't convinced of the value proposition for marketers. "Clients will be asking themselves, âWho's minding the store? Whatâs in it for me?â â he said.
Huntington is also not swayed by the value proposition. He dismissed previous efforts to roll up small agencies, saying, âThey could buy pencils at a lower price or something like that. There just wasn't much of an advantage.â
Strong brand base essential
Huntington said 3i's plan would have potential if the network were built around a strong brand that meant something to a large segment of b-to-b marketers. âIf there was an anchor brand that was very strong, then it may be a different story,â he said.
Kovac has two words for anyone trying to launch a b-to-b network: âGood luck.â
Luck won't be necessary, said Bisceglia and de Roziere, who point out that one group in particular is supporting the plan: integrated marketing communications firms.
âWe're turning away more agencies than we're accepting,â de Roziere said.