ANALYSIS: Mergers & Acquisitions - Lighthouse sets its sights on US growth

Lighthouse Holdings isn't a household name to most PR people, but that's about to change. The Chicago-based company made its first splash on the PR scene last week in buying Financial Dynamics, a dollars 27-million firm that ranks among Britain's top three financial PR companies.

Lighthouse Holdings isn't a household name to most PR people, but that's about to change. The Chicago-based company made its first splash on the PR scene last week in buying Financial Dynamics, a dollars 27-million firm that ranks among Britain's top three financial PR companies. Lighthouse's next PR targets will likely be US-based firms, which could mean a shopping spree among mid-sized shops since communication conglomerates already own almost all of the bigger players.

But Lighthouse's acquisition binge will not be confined to PR. Backed by US private equity funds Frontenac Company and GTCR Golden Raunser, the company is putting together a network that can help companies in everything from new product creation to marketing.

All, that is, except advertising, says Lighthouse president Martin Beck.'I don't think it's the wave of the future,' Beck says about advertising. Selling through traditional media advertising is too narrow a focus in today's changing consumer marketplace, Beck contends. He wants Lighthouse involved in a broader array of brand-related functions. He defines those areas, and ticks off the companies Lighthouse already has purchased in each:

- Knowledge building Companies need to know what the market wants in terms of new products and services. Peclers Paris, part of Lighthouse subsidiary Fitch, specializes in predicting new trends.

- Brand shaping Defining what a brand will be and what products it will sell are specialties of Fitch - the company Beck previously headed which is now part of Lighthouse - and Primo Angelli, a branding and design consultancy.

- Message building Getting a company's message to consumers, investors and employees. This is where Financial Dynamics (FD) fits into the Lighthouse matrix. It's only a matter of 18 months or so since FD bought itself out from French-run network BBDP with a valuation of dollars 12 million, but Nick Miles says the deal gives FD the funds to expand beyond investor relations into lobbying, internal communications, crisis management and even brand management.

- Creative selling Shaping the sales experience is what Lighthouse units like Communicator and Davidson Marketing do. Lighthouse also has put together a sports and events marketing team with Fantastic Sports, International Sports Marketing and Sports Pro Hawaii. Lighthouse is now casting its rays on the US, on the hunt for further acquisitions. 'We do have definite plans to purchase sister companies within the States,' Beck says. Likely targets will serve to expand the 'message shaping' portion of Lighthouse. Beck won't put a price tag of the types of firms he might acquire. Rather, he points to several criteria he thinks are more important than simply looking at annual fees.

He wants companies that are profitable with managers who want to stay involved in their companies after Lighthouse buys them. Lighthouse's track record to date has been to retain current management and firm names of the companies it buys. 'We don't want to build a Lighthouse center,' he says. Rather, the Lighthouse role will be in assembling specialist firms that can refer business to each other as companies progress from product creation to sales.

Lighthouse has a little more than dollars 200 million to fund its buying spree, says chairman Terence Graunke, who comes from the marketing communications world. Lighthouse can provide companies it buys with the resources to expand their businesses; indeed, officials at FD expect to double their business in the next three years. Beck says Lighthouse relies on the managers of acquired firms to set such growth goals and to meet them profitably.

'Our idea is not to over-manage,' he says. 'Our idea is to let these people do what they do' while Lighthouse extends their client relationship by bringing in other segments of its business empire to work with those clients as well.

Lighthouse's involvement in product design makes it more than your basic marketing communications firm, Beck contends. He's also not positioning Lighthouse as a direct competitor to management consultants such as McKinsey.

Rather, he sees businesses relying on the McKinseys of the world to determine fundamental business strategies. Lighthouse enters the picture by reviewing tactical questions. 'We're not an (ad) agency and we're not a management consultancy,' he insists. 'We're a growth consultancy. We're about speed, innovation and growth,' he says.

As such, he can see Lighthouse working alongside, rather than competing with, the major management consulting firms in the marketplace today.

By not buying ad agencies, he also hopes to work with, rather than against, the communications conglomerates out there. But as the leading consultancies and ad agencies extend their reach into PR and strategic communications, Lighthouse will inevitably find itself running up against such firms more and more. Increasing its American PR presence could hasten that, but it's a chance Beck and Lighthouse are willing to take.

Whereas the current major international media networks all have their origins in long-established ad agencies, Lighthouse didn't exist a year ago. Persuading clients to buy a range of services, such as direct marketing, PR and advertising, under one roof, is a current obsession with the likes of WPP and Interpublic Group. But this takes time and effort, and there are few notable examples of cooperation between sister agencies. 'There isn't too much synergy at present within Lighthouse,' says Lorna Tilbian, a media analyst at UK-based West LB Panmure.

Some industry observers are skeptical about whether this is the dawning of a major new global media services network or rather a roll-up operation that will bundle agencies together and attempt to sell the bundle to major players in the future. 'It takes a generation to build companies such as Interpublic and WPP,' Tilbian says. But Chris Matthews, chief executive of the Hogarth Partnership, thinks Lighthouse's newness may work in its favor: 'There is a lot to be said for trying to create a company culture from scratch.'

Largest small company

Lighthouse may be young, but it's growing fast, and Beck doesn't have any optimal size in mind for its operations. 'I would like to be the largest small company we can,' he quips.

Does that mean a public offering is in the works to fuel further expansion?

Beck insists his company's backers are not looking for a quick return that will allow them to pull out their money, but he acknowledges that a public offering could happen down the road. Not bad for a company that just started assembling its lineup last fall. 'Our culture is really about integration and the desire for excellence,' Beck says. The industry will be watching to see where Lighthouse turns to next.

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