2 More Shops Vacate Middle Ground

Partners & Shevack, EvansGroup Follow Riney Into Larger Networks
NEW YORK–Two more midsize agencies sought safety in numbers last week as they agreed to become part of larger networks.
In the most recent deal, Partners & Shevack here said it would be acquired by Wolf Group, a Toronto-based communications company with a master plan to build a billion-dollar agency network in three years and then take it public in a so-called roll-up merger.
The Wolf-Shevack deal followed last week’s agreement by Seattle’s EvansGroup, a $350 million advertising and public relations shop, to be acquired by Publicis. That deal comes on the heels of Publicis’ acquisition of Hal Riney & Partners in May.
Industry observers said the moves add more credence to predictions that midsize shops, and those lacking global reach, will struggle to survive in the current climate of consolidation.
EvansGroup chief executive officer Jon Johnson agreed. “There is one word today: consolidation,” he said. “Ad agencies and clients are consolidating. There are fewer clients for fewer agencies.”
There is plenty of evidence to support that claim. Just last week, the acquisition of Digital by Compaq claimed an agency casualty as the latter consolidated its global ad account at a single shop, leaving one incumbent out in the cold.
“To be competitive, we have to connect with those with more resources,” said Johnson. “It is difficult to compete with the resources of larger agencies.”
Brett Shevack disagreed that marketplace conditions forced his hand. “We had no need to do anything,” he said, when asked if the move was spurred in part by a poor financial showing in 1997 (when billings and revenues both fell). Rather, Shevack said, he was drawn to Wolf’s aggressive growth strategy. “A few years from now, the comment about Wolf will be, ‘Where did these guys come from?'” he said.
The $250 million agency, with clients such as Smith Corona and Pfizer, will retain its name. It is the Wolf Group’s second acquisition in 12 months. Last year, the company bought the $121 million Cleveland-based Meldrum & Fewsmith, which was renamed Wolf Group. Wolf also owns ad agencies in Toronto, Buffalo, N.Y., and Rochester, N.Y.
The Shevack deal, which involved cash and stock, puts Wolf “over the $400 million mark,” said Larry Wolf, chief executive officer.
Wolf, the founder of the privately held Wolf Group, said his strategy is to find U.S. agencies with minimum revenues of $10 million. By this fall, Wolf said, he hopes to have completed at least two more acquisitions in the U.S. and Canada.
It was this aggressive approach that convinced Mickelberry Communications, the legal entity that owned Partners & Shevack, to agree to swap its ownership of Shevack for a sizable chunk of Wolf, said Greg Garville, president of Union Capital Corp., the private investment company that controls Mickelberry. “We hope to participate with Wolf on a number of acquisitions,” he added.
Wolf approached Shevack and Mickelberry in February at the urging of Don Gilbert, managing partner of the Gilbert Farlie consultancy retained by Wolf last year to help ferret out prospects.
In the short term, Wolf guarantees autonomy for the shops the network owns, but he would not rule out consolidating various operations, such as media buying, for efficiencies. Added Shevack: “If it makes sense, we’ll certainly take advantage of it.”
For Publicis, EvansGroup (which will be folded into Publicis) brings marketing capabilities the network was lacking.
“Advertising is not where most of the business is growing. A big portion of the business is below the line. That’s what we’ve been lagging on, that’s what Evans has been strong in,” said Publicis’ chairman and chief executive officer Bob Bloom, who will oversee the Publicis-EvansGroup combined U.S. operation.
Observers say more mergers and agency consolidations are certain.
Alan Gottesman, managing director at West End Consulting, said “deals are in the air.”
With capital available on the cheap, “these guys are saying, if we don’t do it now, we’re never going to do it at all,” Gottesman said.
–with staff report