Canada agencies feel recession's pinch

By Published on .

The recent demise of Hampel Stefanides highlights the difficulties Canadian advertising companies have suffered in the U.S. market.

The Canadians, flush with dot-com cash and high stock prices like their southern neighbors, paid top dollar in the late 1990s to outbid U.S. companies for agencies. But as the U.S. ad recession took hold, they found themselves suffering from slumping earnings and stock prices like their southern neighbors, only more so.

Among Canada's top publicly owned ad companies, only Cossette Communication Group's stock appears healthy, although it is trading near its 52-week low of $8.10. Rivals Maxxcom, Mosaic Communications Group and Envoy Communications Group all trade below $1 per share.

"You have to wonder how well some of these companies understood the U.S. from a business perspective," said Vince Dong, a private chartered accountant and analyst in Toronto. "I wouldn't send a piranha from Canada to live in New York."

Some agencies, such as Quebec-based Cossette and privately owned agencies such as Gee Jeffery & Partners, are doing well, he said. But companies such as Envoy and Maxxcom-parent of Colle & McVoy, Minneapolis, Miami-based Crispin Porter & Bogusky and New York-based Margeotes Fertitta & Partners-still have to prove their worth to shareholders, he said.

Everyone was hit by the advertising recession, said Bob Leshchyshen, analyst at Northern Securities, Toronto. Cossette-parent of New York-based Cossette Post-has been more conservative than its rivals and is doing well, thanks to big clients such as McDonald's Corp., General Motors Corp. and Coca-Cola Co. On the other hand, he noted The Mosaic Group has been badly affected. Mosaic began a restructuring of its debt and capital structure in December and hired an investment banker in January to sell all or part of the company.

`canadian peso'

Their problems are aggravated by what one U.S. agency executive called "the Canadian peso," the continued weakness of the Canadian dollar, which has sunk by more than 50% against the U.S. dollar in the last two years.

High U.S. salaries and expensive real estate take their toll, said observers. The Canadian parents don't have deep enough pockets to carry their U.S. shops, and their high salaries, during a prolonged slowdown, said Mr. Dong.

Harold Reiter, Maxxcom's president-CEO, said the company's focus on new business and cost control has helped with the U.S. economy. But he admitted that lack of visibility in the U.S. is a big factor in the market, especially since its U.S. agencies work independently rather than under the Maxxcom brand.

Envoy's restructuring seems to be paying off, said Mr. Leshchyshen. The company has scaled back to a small agency and branding operation and doesn't have a lot of debt, he said. Toronto-based Envoy, which had tried to buy U.K.-based Leagas Delaney in 2001, closed New York-based Hampel Stefanides and two Toronto design firms as part of its restructuring.

The closing of Hampel Stefanides came after a year of negotiations with potential buyers. In a statement, Envoy's management blamed the closing on slowdowns in ad spending after the Sept. 11 attacks, client realignments and high real estate costs in New York. Geoffrey Genovese, Envoy president-CEO, did not return calls for comment.

The partners at Hampel Stefanides, Dean Stefanides and Larry Hampel, signed up with The Tucker Partnership, a small agency in New York, where they will be senior partners and creative directors. The agency, renamed Tucker, Hampel, Stefanides & Partners, also hired all of Hampel Stefanides' staff and is negotiating with Hampel Stefanides clients including Neuberger Berman, Steve Madden, Aer Lingus and BASF.

Most Popular
In this article: