Fahlgren Looks for Strength in Numbers

Years of what one executive called “soft talks” about a merger led to more serious discussions in the past six months as two Ohio shops realized they would be better off as one amid the continued economic slump.

Fahlgren, which is based in Columbus, Ohio, and has seven offices in the Southeast, will acquire crosstown agency Lord, Sullivan & Yoder within 45 days under a letter of intent signed last week. The combined shop will claim about $190 million in billings and $24 million in revenue.

“With the fast-moving consolidation of business, it became clear to us that now was the time,” said Bob Bender, LS&Y’s chairman and CEO. “I think smart companies are looking to find partners in these times to position themselves for a stronger future.”

Bender joined LS&Y shortly after the agency was founded 38 years ago. At 61, he plans to assist with the transition and then retire, but said the sale is not an exit strategy for himself. The agency is employee-owned. Terms of the deal were not disclosed.

Still to be worked out is a management structure and a name, although Fahlgren is likely to remain—it’s the larger shop, with about $144 million in billings and clients that include McDonald’s and National Automotive Parts Association. Agency CEO Steve Drongowski said he has no plans to leave.

LS&Y’s revenue dropped almost 22 percent in 2002 to just over $6 million. Public relations services makes up about 50 percent, with the rest marketing services.

“I can officially dispel the notion that PR is recession-proof,” said LS&Y’s Neil Mortine, president and COO of the PR practice. “We’ve needed for a long time to get bigger. The recession did drive a lot of agencies together.”

For two years, Fahlgren & LS&Y have shared a client, Ohio State Medical Center. Fahlgren handles the advertising and LS&Y the public relations. That relationship brought the shops closer and led to talks about a merger.

Fahlgren has focused on traditional advertising and expects the purchase to boost its PR, direct and interactive capabilities, Drongowski said. “This is a nice opportunity for us to be more competitive for new business, and to provide additional services for our existing clients,” he said.

Fahlgren’s revenue was up about 9 percent last year, despite a 5 percent dip in billings.

In the early ’90s, Fahlgren was owned by the Interpublic Group. The shop regained its independence in 1994 after IPG bought the former Ammirati & Puris, whose Burger King business conflicted with Fahlgren’s McDonald’s franchise-group work. Two years ago Fahlgren came close to merging with what was then HMS/ Hallmark (now Ten Worldwide) in Columbus, but could not agree how the combined agency would be run.

This time, both shops said culture will not be an issue, and there no client conflicts, executives said.

“I think it’s easier to make the numbers work than the cultures,” Bender said. “We’re [both] kind of straight-ahead, Midwestern folks.”

The recession-spurred acquisition is the latest of several in the Midwest. Last year, Hoffman York, Milwaukee, bought Tom Reilly Advertising, Chicago; Nelson & Schmidt, Milwaukee, acquired Waldbillig & Besteman, Madison, Wis.; and Ayers Advertising and Kahler & Co., both Nebraska, merged.

“Big agencies can sit for a couple years and figure out how to get through a tough market,” said Ralph Cutcher of The Rojek Cutcher Group, Cleveland. “For the smaller shops, you don’t have the luxury of catching your breath in a soft period.”