Razorfish Suitors May Have to Offer More Than Dollars

Microsoft Wants a Buyer That'll Commit to Ad Schedules, Software Use

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NEW YORK (AdAge.com) -- There are a lot of players talking to Microsoft about Razorfish, among them Publicis, Dentsu, WPP, Omnicom, Interpublic and AKQA's private-equity investor, General Atlantic. But to best the field, the winning suitor will likely have to fork over more than money to the agency's owner, which is looking for "strategic assets," such as a commitment to buy its advertising offerings or use its technologies.

Attempting the sale of an advertising company amid a horrible economic downturn isn't exactly intuitive, but for Microsoft, now could just be a good time. It would be beneficial to demonstrate some ad traction around its search and display assets, and wrangling any future spending commitments by the deep-pocketed holding companies would be considered a boon. According to several people close to talks that desire may have an effect on who the buyer is, giving the holding companies that also wield significant advertising buying power a leg up over private equity.

Several major buyers have been circling Razorfish since Microsoft acquired its parent company aQuantive almost two years ago for $6 billion. It's among a small group of digital agencies of its size that have yet to be snapped up by holding companies. Razorfish's 2008 worldwide revenue totaled $409 million, up 11%. That figure makes it almost three times as large as independent AKQA.

While the recession has battered the global advertising sector, digital revenue was a 2008 bright spot among ad holding companies. According to Ad Age Data Center information, U.S. revenue at digital specialty agencies jumped 14.8% in 2008, and digital accounted for 16% of the Big Four agency firms' 2008 worldwide revenue, up from 12.3% in 2007.

The most likely buyer for Razorfish appears to be Publicis, which was the first holding company reported to be in talks, originally by the Financial Times, on the heels of the Cannes Lions International Advertising Festival in France. It would like to add the shop to its stable of assets that include Digitas and VivaKi, the media-buying division. Publicis also appears to be in a relatively healthy financial situation to buy the firm compared to its peers.

Likely suitors
London-based WPP is also interested but is thought to have less flexibility financially and would largely be interested as a defensive move. (Last year, Ad Age reported WPP was interested in doing a strategic deal with Microsoft in which the holding company could shed part of the 24/7 Real Media assets plus cash in exchange for Razorfish. Since then, it has closed on an acquisition of TNS.)

Meanwhile, a dark horse is Omnicom, which is involved in talks as well, according to a person close to the situation. Omnicom hasn't made a digital purchase in several years and is expected to have a disappointing 2009. Dentsu was reported by the Financial Times to be pursuing a deal as well.

Dentsu already has a partnership with Razorfish, called -- as of this year -- Dentsu Razorfish. It was born out of a joint venture in April 2001 between Dentsu and printing marketers who began offering digital communications. The entity struck an alliance with Razorfish in January 2007 to become Japan's first fully fledged interactive agency. Today it has nearly 200 employees. The Tokyo-based company is run by President-CEO Reo Watanbe. Interestingly, Publicis and Dentsu also have a relationship, with the latter owning 15% of the French holding company. The holding companies and Microsoft either declined to comment or couldn't be reached.

Gaining strategic ad commitments or assets in addition to cash would help Microsoft from a public-perception standpoint, since the company will recoup through a Razorfish sale only a fraction of the $6 billion it spent to acquire aQuantive. (It retains aQuantives ad-serving business, Atlas, and its media business, DrivePM.)

Incidentally, this is one of the most unusual agency-acquisition situations in recent memory, as Microsoft, Morgan Stanley and Razorfish have yet to come out and say the asset is for sale, and any industry executives who are familiar with the situation all caution that the talks are cast as a "potential sale of the agency."

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