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News Analysis: New Kid On The Block

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With a $120 Mil. Bid for Arnold Communications, Da niel Snyder Emerges on the Ad Scene BY BOSTON--At 23, Daniel Snyder bombarded publishing and real estate mogul Mort Zuckerman with phone calls, hoping to meet him. His persistence paid off. The aspiring young publishing executive eventually convinced Zuckerman, the chairman of U.S. News & World Report, to invest $3 million in a fledgling network of ad-supported college magazines.
Ten years later, his fast-growing, publicly traded Snyder Communications counts Zuckerman as one of three outside executives on its eight-member board of directors. The other heavy hitters include General Motors' Phil Guarascio and money manager Mark Jennings of Generation Partners, who was formerly with Goldman Sachs & Co.
Last month, Snyder Communications rose from advertising obscurity when it agreed to buy Arnold Communications, a top 20 ad agency with revenues of about $90 million, thanks to creatively acclaimed work for clients such as Volkswagen and Bell Atlantic.
Snyder's grand plan is to build Boston-based Arnold into a leading international ad agency and, in the process, line the pockets of Snyder shareholders, many of whom already are millionaires many times over.
In February, Snyder Communications reported record revenues, operating profits and earnings per share for the quarter and year ended Dec. 31, 1997. In a statement at that time, Snyder said: "To put this in perspective, entering 1997, analysts estimated we would reach revenues of approximately $135 million and earnings of 35 cents per share. However, we finished 1997 delivering $333 million in revenue and 54 cents per share." Not bad for a kid who never finished college.
"The New York companies pitch Arnold as a regional company headquartered in Boston," Snyder explains, and "Snyder as being in a horse pasture in Bethesda, Md." He is quick to add, however, "We are a global ad services business. Arnold is now part of a public company which gives them a credibility and strength they didn't have before and it's got a clean slate to build on. This is going to be fun."
Business associates and colleagues such as Zuckerman describe the 33-year-old Snyder as a bright, ambitious and focused businessman who has a knack for consummating deals. An Arnold board member, speaking on the condition of anonymity, said the initial overture from the then-unknown Snyder Communications was almost dismissed out of hand. "A few of us at that first meeting with [Arnold chairman Ed Eskandarian] snickered and said, the Snyder Communications? We didn't have a clue."
All that changed when Arnold's due diligence on Snyder and his company yielded nearly unbelievable results, this source said, including A+ ratings from six investment banks that tracked the company.
When Snyder Communications went public two years ago, turning Snyder's top executives into megamillionaires, Snyder was the youngest chief executive officer listed on the New York Stock Exchange. His certificate of listing, framed on the wall behind his desk, is one of the few personal touches in a sun-filled office that contains all the usual trappings of a corporate executive, along with two wood-grained humidors and a couple of meticulously crafted bull statues.
The company's offering document listing initial investors is also top drawer. It reads like a Who's Who list of Hollywood, Wall Street and Washington movers and shakers, including such stellar names as Zuckerman's longtime partner Fred Drasner, president of U.S. News & World Report, TV magnate Barry Diller, ambassador Robert Strauss, public relations executive Robert Marston and Dan Lufkin, formerly of Donaldson, Lufkin, Donaldson.
How did a young entrepreneur attract this caliber of investor? Snyder is "one of the most energetic, focused and talented people I have ever met in business," Zuckerman said. "That's why I backed him 10 years ago."
Zuckerman's confidence was well placed. The week in March that Snyder Communications announced its intention to acquire Arnold its share price peaked at $49. "You get one chance on Wall Street. All anyone really cares about is what is delivered Dan Snyder's policy is to meet or exceed expectations," says one of his associates.
Snyder calls himself a "nontraditionalist. I can put diapers in the hands of new mothers. I can put new drugs in the hands of doctors. What I can't do is television or magazine advertising." And that's where Arnold comes in. "I want to put them on a faster track," Snyder says.
Yet despite his company's impressive bottom line, headquarters keeps a decidedly low profile. Snyder Communications' HQ--where more than 600 employees work--is a nondescript office building surrounded by a neat swath of grass and a parking lot.
The structure is situated among similarly styled buildings that house the regional offices of companies such as ComCast and Sybase. Snyder's office on the 15th floor is whisper quiet, impersonal but functional. It's a far cry from the frenetic pace and colorful environs that typify most ad agencies.
Given his ambitious nature, the youthful Snyder seems surprisingly ill at ease being interviewed, although his manner is gracious, friendly and direct. When it was suggested he pose on Madison Avenue for a photograph to accompany this story, he refused, fearful of being portrayed as a hot-shot publicity seeker.
Snyder, who describes himself as a "college journeyman," studied marketing at several schools, including the University of Maryland, but never graduated. He eventually settled in Maryland and lives "as far north" as his Georgia-born wife "will allow me to go," he explained in a recent interview. The Snyders have two daughters, ages 2 and 3 months.
When he's not involved in running his farflung enterprise (Snyder Communications owns more than a dozen companies in three countries, see chart below), he describes himself as a family man. His sister and co-founder, Michele, 35, is vice chairman of the board and chief operating officer of Snyder Communications. His father, Gerald, another early investor, once worked for the company, but this is not a mom-and-pop operation, Snyder asserts.
Spurred by entrepreneurial ambition, Snyder started his first company, Collegiate Marketing and Communications, at age 23. From the failure of CampusUSA magazine (and the subsequent loss of Zuckerman's money), Snyder abandoned publishing. Instead, he began mining various niches in product distribution. In 1989, these specialized services formed the backbone of the newly named Snyder Communications. Those offerings included medical marketing services, such as door-to-door sales reps for drug companies; multilingual telemarketing; Wallboards, a trademarked product that is essentially an information-rich and ad-supported poster in a medical setting; and product sampling, mainly targeting new parents and college students.
Snyder Communications plans to continue to fortify that network of service companies while setting its sights on the more razzle-dazzle world of advertising, bolstered by this year's acquisitions of Blau Marketing Partners in Wilton, Conn., the nation's fifth-largest, direct-response agency in billings, and Arnold.
"What made Snyder attractive to us was that it was not a general ad agency that's driven to put all sorts of various and sundry services under a single brand name where we would become subservient to a broader relationship which is very restrictive," said one Blau executive. Like Arnold executives, what first engaged Blau officials was their impression that Dan and Michele Snyder "are very bright young people who have done spectacularly well."
Snyder says the cross- selling of clients, for instance, signing one of the drug companies Snyder reps for direct marketing or advertising services--should constitute only a small percentage of new business for either Blau or Arnold. Currently, no one client chips in more than 7 percent, nor does a single industry contribute more than 10 percent to overall revenues, Snyder maintains. Keeping those percentages status quo should help offset a downward trend in any one industry and mitigate the effect of losing any single client.
On paper, the Arnold deal with Snyder looks near perfect: no client conflicts, a vow to leave Arnold autonomous and no immediate changes in leadership. The nine-member Arnold board voted unanimously to accept Snyder's offer: a pure stock deal valued at $120 million. Was it a smart investment?
Analyst Alan Gottesman of West End Consulting says it is too early to tell whether Snyder and Arnold struck a good deal. "Ask me two years after the close [of the deal]...to see what happens," said Gottesman. To the assertion that Snyder paid too much for the Boston agency, Gottesman replied, "Only if it doesn't work out."
Some at Arnold think the sale is too good to be true. Eskandarian, who has been looking for a buyer for his 9-year-old shop for more than a year, doesn't think so. "He's a young, aggressive guy with a dream," says Eskandarian, 61. "I'm on my way down the trail. These young people at our company now have someone else to look up to. It's a great time to be here."
Looking to cash out and yet position the $700 million shop for future growth, Eskandarian gained what he had never had before: other people's money. Arnold is now debt-free, Snyder says. It is able to expand into new markets and explore ways it can build an international network to service larger clients. Snyder and Eskandarian, who says he contracted to stay on for a "minimum of three years," have already engaged in an "acquisition strategy sesion."
The result? The agency will now expand into new markets that Eskandarian had previously avoided: New York, Chicago and the West Coast. "Now Arnold has the capital to go do it," Snyder says.
Of course, some industry pundits say Eskandarian had little choice but to sell to Snyder. With its two largest clients in categories where conflict questions still loom large--automobiles and fast food--Arnold was shut off from all but one ad agency holding company, Omnicom-- and it wasn't biting.
Eskandarian reasons, however, that consummating a deal with Snyder was done for all the right reasons and he deliberately chose not to go the traditional route. "We've always found our own way. It's part of our uniqueness as a company," he asserted.
Even so, Snyder has an ambitious goal for Arnold: to double its revenue in the next five years. Because of what Eskandarian calls the economics of business today, his desire to cash out had as much to do with getting his own money as finding a way to fund Arnold's continued growth. "It's a big jump from 20 to 15," said Eskandarian. "It's a bigger leap from 15 to 10."
During this interview, Snyder pointed to that day's copy of the Wall Street Corporate Reporter newsletter which contained interviews with IPG's Phil Geier and Gene Beard. He read aloud a paragraph attributed to the former: "We continue to grow the nontraditional advertising areas, that is, direct marketing, healthcare advertising, media planning and buying, consulting and public relations We will continue to grow our basic business, but will add new services to increase value for our clients, our shareholders and provide opportunities for our employees."
As for IPG and Omnicom's plans to continue to invest in below-the-line services, Snyder said simply, "Welcome to my world."
And welcome to theirs.