ANALYSIS: Mergers and Acquisitions - Doubts remain about FD buyer Lighthouse/US media services group Lighthouse Holdings has acquired its first PR company in Financial Dynamics, but it is unclear, apart from money, what FD will get from the deal

There is nothing new about international media services groups buying strong local agencies, and in this respect there is nothing out of the ordinary about Financial Dynamics’ acquisition by Lighthouse Holdings last week.

There is nothing new about international media services groups

buying strong local agencies, and in this respect there is nothing out

of the ordinary about Financial Dynamics’ acquisition by Lighthouse

Holdings last week.



What made the deal unusual was the buyer’s brief history. Lighthouse

Holdings is not one of the usual suspect global players - an Omnicom,

Interpublic or WPP. Rather, it is a ten-month-old media services

conglomerate which has been involved in a recent blitz of strategic

purchases.



Lighthouse was created with the financial backing of US private equity

funds Frontenac Company and GTCR Golder Raunser. It is reported to have

over pounds 60 million in equity, as well as additional resources

available to invest in a marketing services platform.



FD is Lighthouse’s biggest buy, and its first PR acquisition. Earlier

this year, it paid pounds 26 million for UK design agency Fitch, and in

the US it has bought branding consultancy Primo Angeli, sports marketing

consultancy Fantastic Sports and integrated marketing agency

Communicator.



But whereas the major international media networks have their origins in

long-established advertising agencies, Lighthouse didn’t even exist a

year ago.



McCann-Erickson set up the Interpublic Group in 1961 to realise

president Marion Harper’s vision of an advertising holding company with

subsidiaries which would operate separately. As industry consolidation

picked up in 1996, Interpublic bought PR companies such as hi-tech

agency Weber Group, and last year bought International Public

Relations.



’To offer full service communications, you have to get into PR,’ says

Gene Beard, vice-chairman of Interpublic.



So what do Lighthouse and FD want from the deal? Money, for one

thing.



This is not the first time FD has changed owners. After selling out to

Broad Street in 1987, eight FD directors were reported to stand to make

pounds 3 million between them by the time their earn-outs came to an

end.



And having bought FD back for pounds 8 million in 1998, the directors

have cashed in again by selling to Lighthouse and will no doubt profit

handsomely from new earn-out deals, understood to cover a five-year

period.



The agreed price of pounds 40 million for FD far outreaches the money

paid for financial PR agencies in recent years. Incepta paid nearly half

that (pounds 23 million) for Dewe Rogerson and McCann-Erickson spent

pounds 14 million on Ludgate.



But, says FD chief executive Nick Miles, personal gain is not the only

issue. The deal gives the firm the funds it needs to expand its range of

services.



’We found bigger clients wanting services beyond investor communications

such as lobbying, crisis management and brand management,’ he says. ’If

we can do these in-house, there will be better confidentiality and the

service will be quicker. The deal also opens up the possibility of

cross-selling with Fitch.’



UK design agency Fitch has clients including BT, De La Rue, TagMcLaren

Audio, and WH Smith, all of which FD might like to get its hands on.



Indeed, persuading clients to buy a range of services, such as direct

marketing, PR and advertising, under one roof, is already an obsession

with the likes of WPP and Interpublic.



’But,’ says Lorna Tilbian, a media analyst at WestLB Panmure, ’there

isn’t too much synergy between sister agencies (at Lighthouse) at

present.’



Robin Hepburn, chief executive of Ludgate Communications, wonders where

FD fits into the Lighthouse portfolio. ’As part of McCann-Erickson,

Ludgate has the potential to be introduced to new clients and to work

with other PR agencies within the family,’ he says. ’The acquisitions

(Lighthouse) has made show a more general approach. It is difficult to

see how it can add value to FD.’



Some industry observers are sceptical about whether this is the dawning

of a major media services network or a roll-up operation which will

bundle agencies together which it will attempt to sell in the

future.



’It takes a generation to build companies such as Interpublic, Omnicom

and WPP. There is no substitute for experience,’ says Tilbian.



Lighthouse chief executive Terry Graunke has already set up and sold a

number of marketing companies, including direct marketing and promotion

group US Communications, which Omnicom bought in 1991 for pounds 63

million.



Furthermore, Lighthouse UK director Mark Scott spent four years involved

in mergers and acquisitions as operations director at WPP prior to

joining the company.



But, Scott says, it is not their intention to sell out, and adds that

the directors’ experience will help Lighthouse. ’We have people who

worked for WPP, Interpublic and Omnicom, and one of our principles is to

avoid their mistake of being too dependent on advertising,’ he says.

’Clients are better serviced by more targeted forms of

communications.’



Graunke adds that the planned portfolio will not include advertising,

but branding and identity, PR, sport and event marketing, promotions,

direct and database marketing, and ethnic and healthcare marketing will

be represented.



Ten months into its life, Lighthouse remains a largely unknown

quantity.



Despite its acquisition of FD, the WPPs and Interpublics will play a

wait-and-see game before deciding whether it is credible competition.



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