Hearst Buys ICrossing, Signals Further Agency Deals

Search Firm Acquisition to Form Core of New Business Unit

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NEW YORK (AdAge.com) -- Hearst today confirmed it's acquiring digital agency iCrossing for approximately $325 million, according to executives familiar with the deal, a figure $50 million shy of the price tag first reported in February. The announcement comes after months of rumors that the publishing company was interested in one of the last large, independent digital agencies still up for grabs.

"From a standpoint of just being another agency in a holding company, we are now the foundation that Hearst is going to build their marketing services around. We are the hub," said Don Scales, CEO of iCrossing, which is the largest search agency, according to Ad Age's DataCenter. Search revenue accounted for nearly 70% of its $121 million total revenue in 2009.

Though Hearst wasn't after a search shop, the publisher was attracted to how iCrossing integrates search into its other digital marketing services, said Matthew Petersen, senior VP-Hearst Magazines. "What is compelling about search is how performance-driven, below-the-line marketing is the foundation for other services [iCrossing has] created, and helps in search-engine optimization and web development," he said. "As social and search dovetail more, that primary foundation is incredibly important."

Hearst is taking a page from Meredith, which has been the poster boy for publishers getting into digital marketing. Mr. Petersen, a Meredith alum who joined Hearst in March, will head a new business unit, Hearst Marketing Services, which iCrossing will fall under. ICrossing will operate as a separate operating unit and keep its name.

"ICrossing is going to operate very independently; where appropriate, we'll bring them in," Mr. Petersen said. "But our No. 1 priority is to support and fuel its independent growth."

Frank A. Bennack, Hearst's vice chairman-CEO, may not be putting away his wallet quite yet.

"I expect [Hearst] will continue to add, but we're not rushing to add tomorrow," Mr. Scales said.

Hearst's acquisition strategy is quite different than Meredith's. The latter has acquired a number of small marketing services shops over the years, while Heart is swallowing one large agency right from the start. Hearst's size drives this different approach, Mr. Petersen said.

"We needed a sizable asset with a large amount of capabilities and capacity," he said. "Hearst is 10 times what Meredith is."

This acquisition leaves only two large, independent digital agencies in the market: Hamilton, N.J.-based Rosetta, which is looking for acquisitions rather than buyers, and private equity-backed AKQA, San Francisco.

Investment banking firm Jordan, Edmiston Group initiated the transaction and acted as financial adviser to Hearst.

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