Dentsu Acquires 360i, Taking a Big Digital Shop off the Table

Few Large Targets Remain as Interactive Agency M&A Heats Up

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NEW YORK ( -- If you're looking to acquire a U.S. digital agency of scale, the pool of prospective acquisitions just got a bit smaller.

The U.S. arm of Japan's biggest ad-agency network, Dentsu Holdings USA, has acquired New York-based Innovation Interactive, which owns digital agency 360i, search firm Search Ignite and analytics and targeting practice Net Mining. And that means there's one less digital agency of scale on the market.

"I think digital is where the growth is right now, so if you want a major presence in U.S., there are a smaller number of agencies out there," said Seth Alpert, managing director of New York-based Ad Media Partners, an investment bank that specializes in ad and marketing deals.

Innovation is a 10-year-old agency network, with clients such as JCPenney, Reckitt Benckiser, Office Depot and NBC. It claimed $61 million in revenue for 2009 and expects to top $80 million this year. GCA Savvian was Innovation's financial adviser. Terms of the deal were not disclosed.

M&A activity
Executives familiar with the digital-agency mergers-and-acquisitions market cite lots of recent movement: Six to eight weeks ago, Dentsu took a preliminary look at iCrossing, answering a call from Bank of America Corp., which is advising iCrossing. Dentsu network had also vied for Razorfish, before Publicis Groupe snapped up the agency last year, and had been in talks with Barbarian Group, in which South Korean network Cheil Worldwide acquired a majority stake in December.

"This deal preceded any auction for iCrossing or even for Razorfish," said Dentsu Holdings USA President-CEO Tim Andree, adding talks have been under way for more than a year.

So that leaves one of the largest independent digital agencies, iCrossing, which reported $120 million in U.S. revenue for 2008, the latest figures available. Late last year the Wall Street Journal reported Hearst made an offer for the Scottsdale, Ariz., agency, adding that potential buyers also included holding companies Aegis and WPP. One investment banker was quick to note Omnicom Group could also look to add a major search agency.

Hamilton, N.J.-based Rosetta is another independent, with north of $100 million in revenue that could provide a potential acquisition. Another digital shop bandied about in M&A talks is AKQA, which is majority owned by private-equity firm General Atlantic.

Growing Dentsu's footprint
Post-acquisition, 360i will be valuable in growing Dentsu's North American footprint, as well as stocking its digital artillery.

"We wanted to find a partner that could help fuel our growth globally without having overlap in terms of global assets," said Will Margiloff, co-CEO of Innovation Interactive.

With so little in common, executives at neither Innovation nor Dentsu anticipate a reduction of headcount for the 300-person company. Innovation execs believe the only efficiencies to be found in back-office operations.

"Our plans are to hire more than 50 people," said Innovation co-CEO Bryan Wiener. "If anything, there's opportunity to accelerate our growth given Dentsu's existing clients."

360i's expansion
Once the deal is finalized, Innovation Interactive will be a wholly owned subsidiary of Dentsu USA, with Messrs. Margiloff and Wiener reporting to Mr. Andree. The company's structure and governance will remain unchanged. Innovation's 360i will now be a sibling agency to Ad Age's Agency of the Year winner, McGarryBowen, design firm Attik and Dentsu-brand agencies in the U.S.

In 2008, 360i, then known as a search specialist, acquired digital creative shop i33 to staff up the agency's design and development department. That same year, 360i also bought Net Mining to fold in display and analytics experience.

"We're looking at lots of opportunities," said Dentsu's Mr. Andree. "We're going to continue to grow, both organically and, if the right opportunities arise, we'll look at M&A. But it's not just about a larger set of assets."

Incidentally, this is the second time 360i will find itself under Japanese ownership. In 2007, Innovation Interactive management bought back shares from Livedoor Japan, after an acquisition in 2005. Mr. Wiener said the employee-and-management-led buy-back with private equity firm ABS Capital followed a high-profile accounting scandal at Livedoor.

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